Yep. Next verse explains it. "That which is born of the flesh is flesh (born of water) and that which is born of the spirit is spirit (and of the spirit). Best commentary on the bible is the bible.
Usually, yes, but you have to read the Bible from the point of view of the audience to which it was written.
1. Everyone would agree that being born of water and the Spirit (John 3:5) is the same thing as being “born again” (John 3:3). So what does it mean to be born again? We see what it means in Romans 6:4: “Therefore we have been buried with Him through baptism into death, so that as Christ was raised from the dead through the glory of the Father, so we too might walk in newness of life.” The newness of life is a reference to being born again.
2. The larger context of John 3:5 shows a theme of cleansing, of which baptism is an essential element, whether it is viewed from a symbolic perspective or from a salvific or regenerational perspective. John 1 tells of the works of John the Baptist and the baptism of Jesus. In John 2 we see Jesus cleansing the temple. After the Nicodemus meeting in John 3, we see Jesus baptizing with His disciples. The baptizing continues into Chapter 4. So cleansing is one of several themes we see as we read through the Gospel of John and baptism is a cleansing ritual. See. Acts 22:16.
3. It was universally held that John 3:5 refers to water baptism from the 1st Century until Huldrych Zwingli in the16th Century decided otherwise. The church fathers who expressly held to this view include Justin Martyr, Irenaeus, Tertullian, Hippolytus, Cyprian of Carthage, Cyril of Jerusalem, Athanasius, Basil the Great, Ambrose of Milan, Gregory of Nyssa, John Chrysotom, Gregory of Nazianz, and Augustine. I have not discovered anyone who held another view during that period of time. There are those who pay little attention to historical development of Christian doctrines but they are missing out on the wisdom of the ages by their failure to do so. I pay attention to these things and show them great deference unless they are manifestly contrary to scripture. The idea that baptism is only symbolic is a new idea in Christian thinking, and a wrong idea.
4. Before Jesus and before John, baptism was a common practice in the Jewish world. Anyone who converted to the Jewish faith had to be baptized. The water of immersion (mikvah) in Rabbinic literature was referred to as the womb of the world, and as a convert came out of the water it was considered a new birth separating him from the pagan world. His status was changed and he was referred to as "a little child just born" or "a child of one day". We see the New Testament using similar Jewish terms as "born again," "new creation," and "born from above." Therefore, the phrase “born of water” would immediately tell a devout Jew like Nicodemus that Jesus was speaking of baptism. That is why everyone in the early church knew that being “born of water” was a reference to baptism. There was never any debate about it because it was always understood. Only in modern times did people get confused about the meaning of John 3:5 because its correct meaning interfered with their faulty soteriology.