Sorry to pick it apart (below), I do appreciate the help and the below is not to insult or be mean. IMO this issue a Cura bug in this feature (more so after rereading the Cura definition of this feature) + they need to get rid of the word 'Hole' in the option and describe what it does properly.
The only Cura explanation I could find talks about 'filling cavities inside the model' -- and this is not even close to what it is doing. I found numerous other posts where people have to turn this off or it screws things up. This is a really bad setting and should be off by default, for sure.
<picking apart the definition of hole and how Cura is using it>
If the Cura algorithm used your definition it would have closed the 'top most' depression (which has 3 walls & bottom but missing one side wall, thus cannot hold water), and not the one in the center of the model (which it did seal off), which can hold water with 4 walls and bottom.
Or if the algorithm was working as you state... all depressions in any surface (in my model) would be a 'hole' and should have been filled in because they all have a bottom, 3 sides, and one other side actually has a hole... so 2 side walls would not hold water.
The true definitions of 'hole' is not determined by orientation and/or number of walls.
Collins dictionary...
A hole is a hollow space in something solid, with an opening on one side.
A hole is an opening in something that goes right through it.