I messed this up. Unfortunately, I was on travel and couldn’t edit my inlays design. David was kind enough to work with me and fix it.
As David explained to me-
“Because [the inlays] are punched out by hand, the design needs to be a little bigger than the finished product so that the edge can be trimmed off.”
The bleed allows you to extend the non-letter artwork beyond the safe zone, knowing it won’t all make it, to extend the design.
No bleed? You’ll see a white circle around the design. With bleed? You can get the artwork to the edge of the inlay.