Yep. spot on! Well, if you needed two fingers on the other hand placed sideways against your middle finger to create a T, you would be in range, too. If your middle finger had overlapped so it was pointing out into mid-air, then the bike would have been too long for you, under this method.
The beauty of it is that it takes into account an individual's reach. It's a bit like boxing and how reach is sort of related to height of fighters. I used it for ages to fit people to bikes when they took cycling classes.
There are three factors that affect the suitability of length and comfort: (a) top tube length (b) stem length and (c) position of saddle in relation to the seat tube.
The first, TT length, cannot be changed, obviously. You will be stuck with what you have even though you can compromise. The problem for women in many cases is that the top tube is designed for men's torsos and reach, and I have seen women with bikes with tiny length stems to try to make a bike fit them.
The second, stem length, can be changed without interfering with knee-over-pedal-spindle positioning.
The third, saddle position can be altered by moving the saddle on the rails or installing a seatpost with additional setback. This can change the knee-over-pedal-spindle position, although that can also be influenced by crank length.
The ideal, for me, is to have the stem around 100mm in length, and the seat positioned midway on its rails on a standard seatpost. Just as an aside, I use 170mm cranks after changing quite recently from 175mm... but that's another story.
I can speak from experience in terms of a "touring" frame that is too small. I had an MTB that I converted, and while at the time it seemed OK, it wasn't really the best fit. I am 5'11" and I think it was an 18" frame like the OP's.
When looking for a good touring frame, the first thing I learned was to find one as big as would provide me with adequate standover height, and good length. This also influences head tube length, and the longer it is, the higher the handlebars will naturally fall without installing excessively long stems.
Whenever I returned to riding my old MTB, I found I just could not get comfortable on it anymore, even on very short rides. It's no longer a part of my stable. All the other bikes I have now have been acquired based on the measurements of my touring bike, including my MTB. They measure about 22 inches, and the saddle-nose-to-handlebar length is almost identical on each.
Of the OP's pictures, the first one I downloaded was riding through the village, and it just seemed the handlebars were too low even though they seem relatively level with the saddle. While there is foreshortening of the bike in the second bike path picture, it sort of confirmed my thoughts.
But then... I could be completely wrong. I doubt it. I've had people argue with me that but for this or that, their frame is comfortable when it's patently not. The human body is very adaptive, but you still can't get away from pain resulting from bad fit.