It helps if you understand the hierarchy of laws--e.g. Constitution>Treaties>Statutes>Regulations>Interpretive Rules>Policy>Agency Informal Discretion through letters, etc. This is a complicated issue so bear with the long post. I also had to simplify some examples as the interaction and doctrines derived from court rulings such as Chevron Deference can actually make the situation worse when dealing with technical agencies and uncertain statutory language.
In 1946, the Administrative Practices Act was passed to rein in government regulatory action by requiring a regularization of rule-making by the bureaucracy--thus, prior constitutional standards such as notice and comment etc. from Supreme Court cases were codified into a statute. As disobeying regulations often can have civil and criminal consequences, Congress wanted to make sure that agency actions were not "arbitrary or capricious" and made it more difficult for the bureaucracy to "target" someone or some entity.
Over time, the administrative state has found ways around the cumbersome rule making process. One way is by way of "friendly" lawsuits where the administrative agency has outside partners that "sue" the agency to get their desired preferences (not referring to adversarial type lawsuits) as a settlement approved by a judge. A second way is to issue "guidance letters" either general in nature or specific to individuals. The "Dear Colleagues" letter by the DOE is an example of this where the agency goes beyond its statutory power to suggest that universities adopt specific policies or risk displeasure from the agency on funding, litigation, etc. As far as the law is concerned, the letter cannot override any statute or even formal rules adopted by the agency in actual litigation. But, given the competition for federal grants, avoidance of expensive litigation, etc, people who might oppose the rule are either coerced or bribed into silence.
Where this gets sticky is that agencies must interpret governing statutes to do its work--for the ATF, some of the governing statutes are the NFA, the GCA of 1968, and FOPA in 1986. In formal litigation over an agency action, the courts will have to determine whether the ATF did their legal homework correctly--for example, an explicit statutory command where the ATF ignores it, will result in an agency loss. But, most laws are not that specific, for example armor-piercing ammunition--has some specific components that are banned from civilian ammunition. E.g. “A projectile or projectile core…which is constructed entirely…from one or a combination of tungsten alloys, steel, iron, brass, bronze, beryllium copper, or depleted uranium;" Let's say that technology now allows a "super polymer" bullet that can defeat current body armor--could the agency ban that bullet. The answer is not legally under that statutory provision so any rules, guidance letters, or informal agency discretion cannot change the agency's lack of power to regulate polymer bullets for armor piercing capabilities.
Where it gets squishy is for the example the 1968 GCA act allows the ATF to prevent and criminalize import and sale of ammunition and firearms that are not for "sporting purposes". With vague statutory language, the ATF floated a rule making proposal to ban the M855 from sale as they claimed that it did not meet the "sporting purposes" requirement. This was withdrawn after widespread criticism in Congress. However, note that because of the Thompson Contender pistol in rifle calibers and the current craze for AR pistols exists and pretty much all rifle ammunition can penetrate soft ballistic armor, the ATF could use similar vague language in the 1968 GCA to issue a guidance letter to Thompson or AR pistol makers or ammunition makers to cease production (probably involve litigation as this is a semi-settled issue but still). Regulatory uncertainty affects what companies are willing to sell and invest in production. Thus, the ATF has a stick that it can use informally without the political risk of rulemaking against manufacturers through the guidance letter. You have to be a pretty risk tolerant person to ignore a statement from the agency about what the law is and if you ignore it, by the way, you have show intent to "break the law" if the court case goes against you. A similar issue arose in 2015-16 over proposed guidance by the ATF over what was considered manufacturing regarding gunsmith licensees. Routine issues that supposedly increased the lethality such as even barrel changing, etc. would have been considered manufacturing by the ATF which required expensive DDTC ITAR registration to comply with the UN Small Arms Treaty even if the gunsmith never was engaged in international commerce. Note here, that an individual gunsmith could either quit doing those services in the letter (loss of business profits) or risk losing their license/business and facing civil and criminal penalties. Voila, a simple letter by the ATF has the impact of having voluntary compliance by gunsmiths because most are unwilling to risk their livelihood to challenge it. This is effectively rulemaking without all of those troublesome notice, comment, hearings, fact finding, etc. No wonder agencies increasingly relied upon it.
What AG Sessions is warning to agencies using his own form of policy guidance, is that if the agency sticks its neck out using guidance letters, then the DOJ may not defend that agency's actions in court which tends to lead to loss in the courtroom for the agency. Plus, outside counsel usually comes out of the agency's discretionary budget meaning less goodies.
