It's intended as an eye-alignment tool. The little dot on the front glass is supposed to line up with the crosshair on the rear glass. Most F/A-18 guys don't use it since you can't move the seat until a generator comes online anyway, so they turn on the HUD and then adjust the seat. The dot usually isn't lined up, because the majority of Hornet guys hunch over slightly in the seat, so they set the seat a little higher.
You're going to feel foolish about trying to make other people seem stupid when you look this up and realize that it IS for designating.
With a hud failure, you would roll in and line up the target with the crosshairs/dot on the other piece of glass. The mission computer then calculates the offset from the crosshairs/dot and you can use the a DDI to fly the velocity vector onto the ASL. You won't know for sure that you're diamond is on the target, but once you have designated with the target lined up with the crosshairs/dot (like looking through a scope) you can assume that your diamond is on the target. This is obviously in an extreme case dropping a gp bomb. The good thing about the crosshairs/dot method is that your seat height actually doesn't matter, unlike what you said. It doesn't matter how high or low you are sitting when you look through a scope (crosshairs/dot). lining them up can be done from any height. You would be right if there were only the crosshairs. Then your head position would be crucial.
I have no idea where you got this ridiculous notion. You'd have to be a suicidal idiot to attempt to employ A/G weapons using something like what you described in this abortion of a post. HUD Designations are normally through the velocity vector, so with a failed HUD, your designation will be a function of AOA, meaning your little "backup sighting tool" will be worthless. With a failed HUD
and velocity vector (INS), your designation is through the waterline; however, since the alignment tool is not coincident with the waterline symbol, there would still be significant lateral error. The MC does not under any circumstances calculate a lateral offset to some arbitrary marking on the glass, so you'll have some unknown lateral error, probably much greater than the CDE of whatever weapon you are dropping, unless you want to argue you'll be dropping a nuke via dive-delivery. Furthermore, there isn't a Hornet guy alive who would advocate pointing your nose at the ground with a failed HUD, even (or especially) in combat conditions.
Whoever told you that was trying to make a fool out of you.