This is indeed a reference to the Mathematisches Forschungsinstitut Oberwolfach (Oberwolfach Mathematics Research Institute), a conference center in the small German town of Oberwolfach.
The Institute has developed a rather idiosyncratic style of meetings. The most common events are weeklong workshops on specific topics, whose participants are invited by the organizers. Speakers are chosen from among the participants on just one or two days' notice. The talks are indeed relatively "low density", perhaps 4 or 5 x 45-minute talks per day, so not all participants will give talks. Long periods are left unscheduled to encourage informal discussion and collaboration.
The conference center is isolated and so most people don't leave the campus during the week. Participants are housed and fed onsite and meals are communal. As Aru says, there are also measures to "encourage" a more social atmosphere: seating is assigned and changes from meal to meal, and Internet access is not available in the guest rooms until 10pm or so (edit: Najib Idrissi's comment below suggests that this policy has changed).