Translation:They were living together, but they split up.
"They used to live together, but they separated." was marked incorrect. It is not incorrect. Duolingo is getting ridiculous with its one answer only. There are usually many ways of saying the same thing as long as the meaning is the same. I am getting fed up with it narrow translations.
It's more like "not dating anymore". "Se séparer" generally implies the end of a romantic relationship unless the context makes it very clear that it's not. "Je vais faire les courses, on se sépare et on se retrouve dans 30 minutes" (I'm going grocery shopping, we split up and meet again in 30 minutes), in this case it's obviously not about ending our relationship.