it means to reach the lowest possible level or be in the worst possible situation

It is usually reserved for Alcoholics or drug addicts. They eventually hit rock bottom and can't sink any lower. They have alienated their families and may possibly have stolen from them. Friends feel that they can no longer help them. This is when the government has to give them money or treatment.

Thanks Gautam

When something is going from bad to worse we say it is hitting the rock bottom. Example: The marriage of Stephen and Paulina has hit the rock bottom as the couple fell apart over trivial matters.