When an engine heats up, the fit of sleeve to cyl block loosens, even enough to slide out, as in sleeve replacement. The o-ring is supposed to prevent engine oil from wicking up between sleeve and cyl-block, maintaining heat transfer and preventing 'fretting', which is the inner wear of the cyl-block which reduces the interference fit 'grip'.
Disclaimer: This was a '60s-'70s Honda tech canned response. Modern methods and manufacturing may have made this moot. I've seen Loctite's sleeve grip compound, but never used it. Back then, when I bored cyl blocks for oversize sleeves, I used a little extra interference fit to ensure sleeve/cyl-block fit at temperature and heat transfer...