That giant cutout in the center of the top PCBA is for the mouse wheel, which sits between the rotary encoder (on the left) and on top of the mouse wheel click button on the right. In the above annotated photo, the two red buttons are for left and right clicking, while the orange button on the left is for the little button on the side of the mouse. The blue connector retains the ribbon cable that hooks up to the bottom PCBA.

Now that I was far enough into the disassembly to see the PCBAs, I realized how the mouse recognizes when it's closed - a tiny reed switch found on the backside of the top board. The magnet inside the folding section accomplishes two things: it holds the USB dongle in its pocket during transit and activates the little reed switch when the mouse is in the folded configuration.