Could it not mean 'The shirt is right' (as in correct) also? The comp said my answer was wrong when I typed it.
No, "rechts" doesn't mean "correct".
for that, it could be "Nein, das Hemd ist richtig".
I also thought it could mean That shirt is right as in correct.
Or as in pointing that the shirt is actually to the right, you can also say the shirt is right.
"rechts" only refers to location.