Yes, that is a visual indication of what the autofocus system detects. It is evaluating the focus at the selected focus-point in the frame, so if you have objects in the frame at different distances, which focus point you have selected will determine which object's focus is being evaluated.
Because this uses the same circuitry as the AF system, it suffers from the same limitations. In particular, if the subject is one the AF system can't reliably focus on, the focus indicator will be unreliable as well.
If I were evaluating a lens for sharpness, I would use a tripod for the camera, a fixed, stable object as the target, and Live View as my manual focusing indicator.