I expect the only people that could answer your question with any certainty would be the people manning the tech support phone lines at the company that made that frost free faucet.
I'd look for a manufacturer's name on that faucet and Google that name to find their web site, and ask their tech support people what water leakage out of that hole is meant to indicate.
Did you see any O-rings on that stem when you had it out?
Most people aren't aware of it, but O-rings don't have to wear out to leak. O-rings have something called a "compression set" to them. When the O-ring is new, it's cross sectional shape is round, and it exerts sufficient pressure against the bore that it's in to prevent water leakage past the O-ring.
However, rubbers are actually extremely viscous fluids, not solids, and as a result of being kept in compression for many years, the O-ring will gradually change it's cross sectional shape to conform to the space it's confined to. If the mechanism that the O-ring is installed in is used and the O-ring called on to do it's job, that O-ring will leak. That's because the change in the cross sectional shape of the O-ring results in it's no longer being able to exert the same outward force against the bore to prevent water leakage past the O-ring.
So, if you don't bother changing O-rings in seldom used faucets because you figure there's little wear on the O-ring, you're fooling yourself. An O-ring will go out of shape as long as it's under compression, whether the faucet is being used or not. And, once it's distorted sufficiently that it doesn't exert sufficient outward force to seal of water flow past it, the next time you use that faucet, the O-ring will leak. And that's true even if you only use a faucet once a year, for example.
What I'm thinking is that you may have changed the washer in this frost proof faucet many times before, but if you've never changed the O-ring(s) in it, it may be water leakage past some O-rings that's causing water to drip out that hole.
Different rubbers used to make O-rings have different compression set resistance ratings, and a higher compression set resistance rating means the O-ring will change it's cross sectional shape under compression more slowly for a longer life.