Yes it literally means "hundred years", while happy birthay literally means "wesołych urodzin". But if you try witshing someone "wesołych urodzin" people will be confused.
I said this to my grandmother-in-law recently (she's only 79) and my wife said it wasn't enough - I always assumed it was short for something like 'I hope you live for a hundred more years' but it turns out it's more like 'I hope you live for a hundred years in total' :/
Well, I think that 79 is way too early to get offended, but generally yeah, it's "I hope you'll live to your 100th birthday" :) So sometimes it happens that people decide to change it to "Dwieście lat!" and that is surely a safe version :D