My apologies - I didn't anticipate this problem! The short answer is that you need to install tilemill from source for this to work.
The long answer is as follows. The polgyon-geometry-transform feature was available in mapnik in version 2.1.0 onwards, released in August 2012 [1]. The latest tilemill release is v0.10.1, released in October 2012 [2].
mapnik-reference is the project within tilemill which tells tilemill what features are available in mapnik. Information about polygon-geometry-transform was only added in March 2013 [3], in version 5.0.5. Tilemill 0.10.1 depends on "mapnik-reference 5.0.x" but shipped with version 5.0.0 . So reinstalling from source will make it use the latest 5.0.x mapnik-reference (5.0.9), and that contains the information about polygon-geometry-transform.
I use tilemill 0.10.1 myself, but I installed it from source at some point after March 2013, which is why I didn't realise there would be a problem!