Full-Covariance Gaussian
Definition
A full-covariance Gaussian variational approximation is a multivariate Gaussian with an unrestricted covariance matrix:
$$q_\phi(z)=\mathcal N(z\mid \mu,\Sigma),$$where $\Sigma$ is not constrained to be diagonal.
Why it matters in Q1
It can represent tilted elliptical contours and posterior dependence, unlike a diagonal Gaussian.