If you watch the original video, the person OP is talking about referred to an arbitrary hole that they added themselves/the disk producers added. The index hole is a normal feature of floppy disks that are "flippy" (usable on both sides).

In addition, OP wasn't talking about the index hole, which was only used on a few platforms. They're referring to the index PIN, which is one of the signal wires that comes out of the floppy device.

So you're doubly wrong, in this case.

How does the floppy infer when to signal on the index PIN?

The index pin gives you information on what sector is currently under the head, but after reading the code OP posted and the Amiga documentation, you're correct that this was specifically referencing the index hole in the CIA's flags. So my apologies, you were correct and I'm eating crow.