According to Apple[0] it is only after the specific activities of: Outdoor Walk, Outdoor Run, and Hiking. Which explains why my estimated VO2 max goes down significantly in the winter months when I'm mainly doing cardio indoors and only taking leisurely walks with the dog outdoors.

[0] https://support.apple.com/en-us/108790#:~:text=Apple%20Watch....

I wonder why they can’t track cardio indoors. Perhaps because the watch doesn’t link up to most / any treadmills and is generally totally inaccurate with respect to distance and speed?

it's just the V02 max estimate which is only validated for those scenarios

That's correct, distance plays a role in the estimate somehow so they limit it to when they can verify via GPS. They don't seem confidant on their distance relative to running on a treadmill. I find my watch is pretty close to the treadmill readout most of the time except when I start getting tired and holding onto the handles, then it begins to diverge.