Transcendence means entirely beyond the universe or existence above. Allah (Glory be to Him) has revealed about Himself in the Glorious Qur’an and through his Messenger Muhammad (May Allah honor Him and grant Him peace) that He is above the creation.  
Since Human mind is limited in its knowledge and scope, it is impossible for it to understand something which has no limits. So Allah (Glory be to Him) mercifully took upon himself to reveal to man some of his attributes, in order mankind may not confuse with those of the creation.
The attribute of transcendence has special significance to man with regard to his worship of Allah (Glory be to Him). Prior to the arrival of Islam in its final form, man has strayed far away from the implications of this noble attribute.
When the concept of God is distorted, people take creations as God-incarnate. One of the oft-quoted phrase about God is “Allah is everywhere”. In the “Golden Age” of Abbasid era, when the philosophical books from India, Greece, and Persia were translated, this idea of Allah being everywhere (Omnipresent) was introduced in Islam. And it became a foundational principle in the creed of Sufi (mystical) orders. It became popular with Mu‘tazilah (the Rationalists, Mutazilities) who occupied key posts in the administration of the ‘Abbaasid Caliph, Ma’moon (rule: 813 to 832 CE). So, the whole concept of ‘Allah is everywhere’ is a non-islamic concept.
Opposite of transcendence is immanence ie, God is fully present in the physical world. On the basis of the false attribute of divine immanence (i.e. the “God is everywhere” belief) some claimed that God was more in humans than in animals, minerals, etc. From that theory it was only a matter of time before some claimed that God was more in them than in the rest of humans. Among Muslim people, a deranged sufi / mystic and so-called saint, al-Hallaaj (858-992 CE), openly declared that he and Allaah were one [A.J. Arberry, Muslim Saints and Mystics] 
There are numerous Qur’an Ayah and other proofs that Allah (Glory be to Him) is above the creation. Allah says “The most Gracious has rose over the throne” Qur’an.Surah Taha 20:5 and there are many more ayah in the Glorious Qur’an which proofs that Allah (Glory be to Him) is above His creation. Qur’an.Surah Yunus 10:3, Qur’an.Surha Hadid 57: 4 etc. 
Narrated by Mu'awiya (R): we see a famous hadith but a long hadith; in which Mu’awiya bin Al Hakim(R) became angry and slapped his slave girl in the face. Upon doing this he felt guilty and he took the girl to Allah’s Messenger (May Allah honor Him and grant Him peace). Allah’s Messenger (May Allah honor Him and grant Him peace) asked the slave girl “Where is Allah?” She replied, “Above the heaven.” He then asked her, “Who am I?” she replied “Allah’s Messenger.”. Upon this, Allah’s Messenger (May Allah honor Him and grant Him peace)confirmed her faith in Islam and ordered for her to be freed. Sahih Al Muslim 1094.
Hadeeth from Abu Huraira (R) in which he narrated that Allah’s messenger (May Allah honor Him and grant Him peace) said, “(A group of) angels stay with you at night and (another group of) angels by daytime, and both groups gather at the time of ‘Asr (evening) and Fajr (dawn) prayers. Then those angels who have stayed with you overnight ascend (to Heaven) and Allah asks them (about you) – though He knows all about you…” Sahih Al-Bukhari Vol 9:525, Sahih Al Muslim Vol 1: 1320.
The narration about the Prophet’s wife Zaynab bint Jahsh (R) who used to boast to the other wives of the Prophet (May Allah honor Him and grant Him peace) that their families gave them away in marriage to the Prophet (May Allah honor Him and grant Him peace) while Allah from above the seven heavens gave her away in marriage. Narrated by Anas (R) and collected by Sahih Al-Bukhari Vol.9:517. 
2. Creation neither surrounds Him nor is above Him in any way.