the pocket is called a cangaroo pocket. (just if you want to google).
There would be 2 different ways to make one, basically: The front of the sweater running seamlessly over the pocket (like yours) or the pocket being knitted after the fact and sewn on / joined by knitting.
The way your pattern does it, seems neat. Do it that way.
you have stitches on the holder. They are the width of the pocket.
so now you cast the stitches back on. you create the part of the sweater that is close to the body.
And: yes: the bottom of your pocket now has a big gap / opening that things would fall through. I am sure that your instructions will tell you where and how to sew this hole up. Look in the "finishing" part of the instruction or the like.