Basically, they created a disk that could accept writes everywhere except a certain sector, something you could not replicate with even a perfect copy.
It was a bit silly to be honest -- this was the easiest copy protection to bypass!
The protection is not the hole in the sleeve, it's the hole in the disk. For example, the garbage reads would happen on track 12, $230 bytes after the $D5 $AA $96 marker. Good luck physically reproducing this.
These protections are trivial to remove in code, though.
And having made multiple copies like that, I know very well it worked pretty well as a method -- it's very likely why that method never became the 'uncopiable' it was claimed to be when it came out.
That is of course why its not just a simple case of locating where the burned hole was relative to the sync hole because the "physical" location of a sector offset on the disk would normally vary from disk to disk (or for that matter from track to track) or format to reformat.