It's from the start of the desktop environment (in our case XFCE) until it's done (in the "screen painted, cpu and disk idle" sense).
Yes 2 seconds is very generous and more minimalistic desktops can go much faster than that. We decided to pick XFCE since, well, first of all, we could hack the code as kernel guys, and second, it has a feature set that at least is close to what the "big guys" do (which code we didn't feel we could hack as kernel guys).
Can XFCE go faster than 2 seconds? probably. We met our budget for it after one small patch so we stopped working on it and focused on other parts instead.
This may sound weird but our project really was about booting in 5 seconds, not about booting fast or fastest ;-).... we engineered it budget driven, which really helped us to spend our time effectively, specifically, on those parts of the boot process that were over budget, rather than getting bogged down in one part and spend 3 seeks making it go from 2.0 to 1.9 seconds.