After a bit of time researching and debugging, I think I have answered my own question.
Compliance for a deployment can state "Compliant" for both of these situations:
- The client needs this update and has installed this update.
- The client does not need this update
Although I can find no documentation stating this, I have come to the conclusion that the feature update from 24H2 to 25H2 must match at the release month level with the cumulative update.
Feature Update "Windows 11 25H2 2025-10" will ONLY install on a 24H2 computer with 2025-10 Cumulative update installed.
Feature Update "Windows 11 25H2 2025-10" will NOT install on a 24H2 computer with 2025-09 Cumulative update installed. Since there is a mismatch in the patch level, the feature update will not install and the deployment will be marked COMPLIANT because the client does not need it.
If my case, many of the 24H2 test clients were at 2025-09 patch level so the 25H2 feature update 2025-10 would not install.
I hope this helps someone else.