This is a common problem, and I agree it is alarming. I made a feature request some time ago to make it easier to see how locations were created, but it didn’t get much traction.
You’re describing the difference between accuracy and precision. In the original example given, the locations are neither accurate nor precise. Locations that are accurate but not precise are an improvement on this. I would be comfortable with having high confidence (e.g., 90%, 95%, 99%) that the true location is within the “circle of accuracy” but even the “accuracy” [precision] values of some GPS enabled devices have a disappointingly lax definition, because they offer standard deviation instead of standard error:
For iOS no definition is provided, although it must exist, despite the impossibility of a perfect statistical definition.
I’d only note that this issue is much much worse on many other citizen science sites, where the workflow to upload observations with an accurate and precise set of point coordinates is less accessible. One of the things I really appreciate about iNaturalist is that it is easy to generate high-quality data with precise coordinates.