If the display is 264ppi, then each pixel is ~ 1/264 = 0.00378 in.
To be retina, we need to hold it far enough back that we cannot distinguish that particular pixel size.
20/20 vision is roughly one arcmin. The scale factor for 1 arcmin is 3438. The distance away from the eye where we begin to see the pixel is D = 3438*.00378in ~ 13 in.
The iPad 3 will be retina if you have 20/20 vision and hold it further back than 13" from your eyes. Of course, if you have greater than 20/20 vision, then you will have to hold it further back.
For instance, perfect vision is ~0.6 arcmin, which gives a scale factor of 5730. In that case, D = 5730*.00378 ~ 21-22 in.
For most people, 264ppi qualifies as retina at > 13" distance from the eyes. But for some with greater than 20/20 vision, pixels could still be distinguishable.
In the end, people will only care that the display will look awesome.