We got one of these as a hand-me-down for our first child who is now 11. Yes the tushy holder is for smaller babies. Also, the tucks that you see on the eBay picture around the top opening are meant as do-it-yourself adjustments. You're supposed to sew more of them when the baby is small and rip them out (or unpick them as some say) as the baby grows.
Also, when the baby is too large for the tushy holder, you are supposed to open up seams on the right and left of the main bag at the bottom to let the baby's legs out. We never got to that point though. Our backs started getting sore on the longer hikes at around 5 months and we got a Macpac Possum (internal frame) backpack carrier.
I was never very happy with the Snugli design: lack of head support for an older sleeping baby, lack of a proper hipbelt and of comfortable and adjustable shoulder straps. In fact, that Snugli is what started me on the slippery slope of critically examining designs and coming up with my own whenever I am not happy with the commercially-available stuff...Been sliding ever since.
Jacket inserts for maternity and babywearing use
Look for the free instructions and patterns to be posted soon in the babywearing resources section of this forum