You are right to be confused, because it is a ridiculous application of scripture.
But I'll start the ball rolling by talking about the beginning.
In the late 1800s Russell began talking about the advent of Christ's rule and its imminent arrival, which crystalized into the year of 1914. Back in those days he based his assumptions not on Matthew 28 by Pyramidology and holy inches. However when 1914 passed it became necessary to now talk about the Kingdom's invisible presence. But after Russell die, Rutherford began to adopt the account of Matthew 28 and in particular verse 34, as the doctrine's internal support. Thus from around the 1940s the 'this generation will not pass' quote, became the catch phrase that gave people hope that the new world was just around the corner.
i'll let someone else, pick up the story from here. :)