I have created a new eDiscovery cases in the Office 365 Security & Compliance Center and added one of my SharePoint online site as a place to put on the hold. I've just added the site, no additional filters etc. Then, I've waited for a day to let the hold take place. Went to SharePoint Admit center and saw that the site is showing with a lock icon, which tells me that the site can't be deleted due to a hold, but, I was still able to delete contents from the site. I was wondering if anyone can tell me if I am doing something wrong or if my expectation is somehow not correct.
When an item under retention policy or legal hold is deleted a copy of that file is stored in preservation and hold library. This is a hidden library managed by Office 365. You can access it at /sites/sitename/PreservationHoldLibrary.
You can read more about it on microsoft docs here