The jdbc:embedded-database
URL connects to an in-process memory database, not a server.
You need to start a server separately (a separate process) which fronts an in-memory database. You can find information on how to do this in the HSQLDB Guide.
http://www.hsqldb.org/doc/2.0/guide/listeners-chapt.html
You than use a normal connection URL such as jdbc:hsqldb:hsql://localhost/test
in Spring to connect to the server. You can also connect to the server with DbVisualiser using the same URL.