Ola backups happening on both Primary and Secondary AG

If the secondary is up and running, when the log block is flushed to disk (either because it is full or a commit), the record gets pushed to the log writer on the primary and to the log scanner (log reader) process on the primary simultaneously. Then the log scanner communicates with the secondary and the secondary then pulls the transaction from the log scanner on the primary to the secondary and processes the log record. The primary log writer doesn't push transactions across, it just communicates with the secondary, it only does that to see if it is up so that it knows it doesn't have to mark the replica as NOT SYNCRONIZED.

When the secondary is not up, then the log writer cant communicate with the secondary so it marks it as NOT SYNCHRONIZED and stores the records in the tran log on the primary. If you look at sys.databases.log_reuse_wait_desc column it should show AVAILABILITY_REPLICA which means the primary is hanging on to all the records.

Once the secondary is up, it will communicate with the primary to request a log scan, it then processes the transactions and communicates with the primary using progress messages to indicate the hardened LSN, presumably the primary is then adjusting its MinLSN, which in turn means the records prior to MinLSN will get deleted as checkpoints happen and hence VLFs will get truncated releasing space when you do a log backup.

But yes short answer is, if your secondary is down you need as big a log file as you need for as long as it is down. Once it is backup and synched at some time you may need to remove the db from the always on group to shrink the log if it is humungous and you dont want it that big.

Besides being unaware that your backup is being performed as a COPY_ONLY backup instead of not being backed up at all, are there any caveats that anyone can think of if this switch is set to default Y or even if it's used at all?

A COPY_ONLY full backup is still a full backup. The only difference between the two is the COPY_ONLY will not reset certain tracking bitmaps. This means your differential backups will eventually be the size of your database.

https://docs.microsoft.com/en-us/sql/relational-databases/backup-restore/copy-only-backups-sql-server