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I read that the translation of "what do you mean?" is что вы имеете ввиду?
1) Which is the correct or better form: ввиду or в виду? Or there is no difference?
2) What is the literal translation of иметь ввиду?
I know иметь means "to have", and according to Wiktionary ввиду means "in view of", so my rough guess is that the literal translation of иметь ввиду is "to have a view", and the literal translation of что вы имеете ввиду? is "what view do you have?"
In the idiom "Иметь в виду" only split writing is acceptable. It literally means, as you guess, to have in a view, but really stands for to mean.
Yet there also exists the preposition ввиду (obviously made of the split form в виду - it's quite a common thing in Russian), which means due to, because of. Actually you can compose some meaningful sentence using иметь and ввиду, but probably it wouldn't be what Вы имели в виду.
Иметь ввиду is a grammar mistake. The right way of writing is Иметь в виду. It is an idiom meaning to mean or to keep in mind.
Что ты имеешь в виду?
What do you mean?
Имей в виду, что они не согласятся с тобой.
Keep in mind that they won't agree with you.
