Shuffle-by-album means: play all the songs on the album in order, and then find a completely different album. Lather, rinse, repeat.
In the old itunes, it was pretty simple. Select some set of albums over which to shuffle. Turn on shuffle by albums. Press Play. Old Itunes also appears to have had a pheechur to skip to the next album, cntrl-alt-meta-shift-fast-forward (or something). I never used it, never knew about it, although I always wanted it. You could also click on any song in any album and it'd play all the rest of the songs in that album and then shuffle on to the next album (a usage model much loved by a different participant in this discussion).
The new itunes doesn't seem to have the skip-to-next-album pheechur.
Getting to shuffle-by-albums is a little baroque in the new itunes--the best we've come up with so far is: create a playlist w/all albums over which to shuffle, and then turn on shuffle-by-album on the new playlist, then press play. The new playlist should be named in such a way to appropriately express your frustration with the new itunes.