Virginia Woolf thinks what we seek isn't reached in the conventional novel because Victorian novels were never able to achieve a level of psychological realism.
She thinks the human mind receives a lot of impressions, significant or trivial, and as a result she considers life as a "shower of impressions" or a "stream of consciousness". So, if he is a free man, the novelist should write following his feelings and not conventions.
It follows that Woolf gives a lot of importance to the psychological sphere: she pays attention to the memories and thoughts with equal importance (if they refer as something significant or trivial). Therefore she gives more importance to the psychological sphere of the characters than to his/her physical concrete actions.
An example of this is the extract from Mrs. Dalloway we read. In the text there are two levels of narratives: the first is about the mind's perceptions of Mrs. Dalloway and the other is about her physical actions. Woolf gives more importance to the first narrative and to the psychological of Mrs. Dalloway: the narrator shows how reality creates impressions in the character's mind using the interior monologue and the "stream of consciousness". With the last technique, Woolf shows the impressions before the creation of a logical order how as well as the mind is linked to such impressions: for example, while Mrs. Dalloway is walking in Bond Street she thinks of her uncle William because the idea is suggested by a pair of gloves and then to her husband and her daughter.