Ok so the thing I was missing here was a simpler example, I think. Having walked through our own file and figured out exactly which bits we'd need to break out into the environments section, this makes a lot more sense. We just have about 25 lines that we'll need under environments.
The meltano-squared example had such a massive environments section that I was like "are we gonna have to pretty much reproduce our whole yml file twice, once for dev and once for prod? and if so, how does that help us test the prod yml section?"