It is supposed to show Mindflayers are this, yes. Alien, eldritch creatures that are meant to be feared. But it kind of fails to do so, really. It is just a "gross" scene. Nothing creepy, alien or freakish really. In ways it can even be seen as comedic or immersion breaking (just grabbing inside a skull to remove a brain like that, with your bare hands? That is just silly).
I would love for mindflayers to appear more allien and more like the abberations they are. More eldritch horror elements would be cool. This scene kind of misses that mark by just being an isolated ick-event that feels out of place, both in theme of the game regarding gore and creepy events as well as immersion.
Even the creatures breaking out of the skull offscreen (while possibly showing the main character's disgusted face recoiling back, and just that accompanied by ick sounds) would be better, and would make it a lot creepier to me. The implied skullbreaking and a brain wiggling out and growing feet and legs. (it goes with the more eldritch horror feel that fits mindflayers well I think. "less is more" and keep the mystery and creepiness rather than have it be all up in your face.)
I do see your point and i think its something I share with regards to RPG's in general. That scene does not "fit" "your" idea of what should happen in the RPG fantasy world of your mind. I totally agree and I stopped playing Pathfinder KM and never tried Outward for very similar reasons. I like what Larian are doing in this game and so do a lot of people that will remain invested in the game and developers for years to come. I doubt they will be able to or willing to tick everyones "ideal" RPG boxes.