It is meant to represent the highest rating that a player can get. To use your Charles Woodson example: Woodson would have a potential of A because the highest is OVR can be is in the 90's. He wouldn't have a potential of F. That would mean the highest his OVR could ever be is somewhere in the 50's. The rest of the scenario would play out much like you said though as he wouldn't be progressing much, if at all, because he is already at his potential of A. Now if he had an OVR of 79 or something, he could progress a lot until he got into the 90's because of his A potential.
Potential is not a dynamic thing though. Your potential never changes in real life. If a player comes out and works hard and practices hard, if he has the god given ability, he will become a star. If he comes out and is lazy and doesn't work, he still has the ability to become a star, he just won't get there. On the flip side, if a player comes out and works hard and practices hard, but DOESN"T have the god given ability, he still will not be a star. He may be a starter or role player or whatever but he will never be a star because his abilities won't allow him to be. That is what potential is supposed to represent. Also potential has always been in these games. It's just never been shown. There has always been some kind of cap on player progression. No matter how good you are, you could never just take anyone and make them a 99 ovr player on the game. Yes there were some players that could reach 99 OVR, but most got capped somewhere before they reached 99. I'm not trying to offend anyone, but I don't see what's so hard to understand about what potential is. It's pretty much a cap on a player's progression. It's there to represent the god given limit on a player's ability. Maybe I'm missing something here.