Sounds like a very esoteric description of and application of Ma ai (distancing), leading and Kuzushi (balance disruption) to me.
The circle he drew around the sumo wrestler could represent the wrestler's range of effective power and skill in all directions (i.e. the places the Sumo could effectively attack while being balanced enough to complete an effective sumo technique on Ueshiba M.) this would establish a basis for Ueshiba M. to measure effective ma ai (i.e. stay out of the Sumo's range while being in a place where he could get off an effective technique instead). If the wrestler attempted to lunge or otherwise move beyond his effective tactical range for sumo techniques in order to engage Ueshiba M. it would be relatively easy for Ueshiba to unbalance him and apply a technique.
So "containing sumo's power" within the circle may have been his way of detecting the Sumo wrestler's effective range and as a result find a way to draw him out of it, where the Sumo wrestler would be weaker and he would be stronger as he applied kuzushi and the one finger pinning technique at the edge and outside of the wrestler's range of effective power and balance.
From what I heard about Sumo wrestlers, when they go into that deeply sunk fighting stance and have full control of their movements they are extremely difficult to move and unbalance and as a result are very strong when in that position and are ready to apply some devastating technique (especially atemi). The only way one could get off an Aikido technique would be to find some way to create movement in a way that puts them off balance, thereby weakening their strong structure, allowing one to get off a technique. One of the ways this could be done would be to provide a reachable target and then move it out of reach (ma ai and tai sabaki) as the Sumo's attack is about to land, from here it would be easier to unbalance and pin or throw the incoming wrestler.
Just my thoughts. Of course it could be some Jedi like application of the secrets of ki that I have not yet seen as well.