I really think that is a critical insight.
Start with the concept of needing “good enough” academics, where what counts as good enough will depend on the college (or school or major) you are applying to, possibly your residency and/or need status, and so on. Even though the focus here is on academics, it is still usually impossible to be precise (absent a published formula), because there are so many different high schools with different curriculums, different grading standards, and so on, and then many colleges are now test optional, and many evaluate all that in context, and so on.
But usually, at least from the college’s internal perspective, some cases will clearly not be good enough (in which case barring exceptional circumstances you will not be admitted), and some cases clearly will be good enough. And if you are clearly good enough, you are on to the other stuff.
OK, then with some colleges (or schools/majors), if you are good enough academically, they don’t have a very high bar to get admitted. Like just be a normal, active kid without any serious disciplinary issues or truly bad teacher recommendations.
With others, though, the pool of “good enough” is still way too big. As in they may still be planning to reject 9 out of 10, or even more, of the academically good enough applicants. And to get into the 1 out of 10 (or less) at that point is often not at all formulaic. That is really the core meaning of “holistic review”.
And indeed, in most cases there is going to be nothing “wrong” with the kids who do not get admitted. Most will have been seen as having lots of positives, but the college can only admit so many. So as described above it becomes a matter of matching positives to institutional priorities in a way that just quickly runs out of space for more.