This is definitely a giant leap forward but there are a number of problems with the new policy.
The language in the policy explains that essentially you tell your command that you are transgender and you get medical services to develop a transition plan. You can't change your gender marker and get to the standards of that gender (physical fitness, facilities, uniforms) until you "complete" your transition. This is problematic because a) a service member who does not want to transition medically is still required to live in their assigned gender indefinitely (this is ambiguous since the policy every transgender person transitions and that the transition is primarily medical), and b) a transitioning service member is still required to live in their assigned gender even though their transition may take years and HRT may make them (in the case of MtF) unable to pass the required physical fitness test without great difficulty after only a few months (e.g. in the Army, a 27-31 year old male must do 39 push-ups in 2 mins to pass and 77 to score the max 100 points, an extraordinary number for even an extremely fit female), these scores affect promotions and failure can be a reason to be kicked out.
The physical standards could be addressed by giving the service member a medical excusal from the tests (known as a "permanent profile") that lasts until their transition is complete.
The uniform standards could be dealt with by changing the uniform and eliminating gender specific hair, makeup, etc. rules (e.g. Army males are prohibited from wearing makeup and are prohibited from wearing earrings at any time, including off-duty, their hair must be substantially shorter than a female servicemember's, etc). The work uniforms are identical in most cases but the dress uniforms vary significantly between genders, so that will be a challenge.
Because during transition the servicemember may be non-deployable, the commander can tell you that you can't transition now, just as commanders can tell you that you can't get braces or have any other non-emergency procedure that will make one unable to deploy for an extended time.
Hopefully, the services will do a good job of implementing the guidance DoD has provided. With the first openly gay Secretary of the Army, I have high hopes for that service.
Directive-Type Memorandum 16-005DoD Instruction 1380.28