First off, yes, actually that's exactly what it means. If bots can solve CAPTCHAS then the CAPTCHAS are poorly designed, that's the whole point.
I don't think this sort of CAPTCHA type step should have a significant place in a good interview process in the first place, if it is important to you to put your applicants through this sort of gauntlet you're not treating them with the dignity they deserve.
If you're just looking to fill cogs in your machine, sure, but in that case you're just as likely to get kids who studied a bunch of interview questions but also don't know shit. I'd just as soon have someone who's good at ChatGPT.
Let me put it a different, perhaps simpler way:
Let's agree on the premise that good human engineers are much better hires than good AI users. If your hiring process fails to distinguish between good human engineers and good AI users that's evidence that your process is not producing good data.
In the exact same way that if your CAPTCHA is getting solved by bots it's a bad CAPTCHA.