Not a bad supposition. The problems I see with that is that if you place the gauge in the dimple on the axle end, the journal bearing is behind the flange on the axle end and you cannot get to it for a measurement. The L shaped part slides in and out but has no markings at all on it so I am guessing it is not the part that does the measuring.
I follow how you illustrate, but how would that indicate if a bearing was ok or not? The L shaped part slides in and out but can not rotate or move up and down; and has no markings. The name of the tool includes 'interlocking' so I am imagining that once set for a bearing size, it would snap on or lock into place to make the measurement.
The device is for measuring the diameter of the bearing surface of the axle, set to axle size, insert plug in hole on end of axle, slide L shaped tool along bearing surface, and note the gap between chisel point and axle (if any). It would also show if the bearing surface is tapered.
I always considered this to be a tool for measuring the babbit lined journal brass which is the softer wear material of such a bearing. It could work to gauge the axle but that would seldom wear much. The L shaped prong could slide in along the axle surface but it is only about 4 inches long, including the part retained in the gauge block. So no way it could gauge the axle on up to a 9 inch bearing.
It looks to me that it is meant to measure the diameter of a axle, it does not appear to be for measuring the concave surface of a bearing, also you need to remember back in "the good old days" they used lots of rulers, tapes, and gauges, dividers and calipers, not micrometers. And tolerances were more of the .010 variety then .001.