As this is an old thread and I haven't read to the bottom yet, this may be a duplicate reply. I apologize in advance if so.
IF the switch is a COMMAND and not an INDICATOR, then why when you unset the switch to issue the command to set all files to not read-only does it NOT remove the RO flag from ALL files and folders. The switch should then remain cleared because there were no more RO files)? Your response is misleading and completely unhelpful. I agree that the UI is NOT very 'clean' but that doesn't excuse an obvious bug.
The problem then is that the File Explorer has a SEVERE LEVEL 1 BUG that needs to be FIXED. There is no other way to interpret this behaviour.
There was a similar problem in the folder customization process, where you can set the folder and all its subfolders to, for example, display as "MUSIC" folders. Only it didn't. This too is a bug. There is a workaround for that - you can use the old Windows 10 File Explorer.
These are BUGS - not misunderstood usage. If a "CLEAR ALL" command doesn't "CLEAR ALL" then the command if BROKEN. Period.
The problem that myself, and potentially some others here are having, is specifically the fact that that block being filled means there is a read-only file somewhere within the target folder,
That is not correct. If you look carefully, you will see that the box is always a solid block even if there are zero files marked read-only within the folder.
It is, in fact, not an indicator at all. Microsoft should never have used a checkbox for a command. And that's all it is, a command. When you click it clear, you're telling Windows that you want to unset read-only from any files that may be read-only within the folder and its subfolders. When you check the box, you're telling Windows you want to set all files within the folder and its subfolders to read-only. Whether you set or unset, it only affects files. The read-only state of the folder, and any of its subfolders, is not affected. Only files are affected.