Yeah, that's exactly how it works. If you have say 7 officers and your limit is 5, you can use the first 5. You can however dismiss ones you're not interested in until the ones you want to use are all under the limit.
It gets surprisingly annoying (especially on the UI side) and bug-prone to try to limit you to "X at a time". Didn't seem worth the time and trouble given that it's a fairly fringe use-case with already a clear way to do what you need to in both cases (i.e. dismiss officers/admins).
Hm, are there any plans whatsoever where Officers and / or Administrators can die? For example, if an Officer's ship gets destroyed or a riot breaks out at a Colony. If there are such plans, it would be much more important to have at least a small number of experienced Officers / Administrators to cover such losses. Or even just being able to store them somewhere at a known location (like dropping them off at said dockside bar in your Colony to pick them up later if needed) would be of immense use. You could go more in-depth, let letting officers request to be dropped off somewhere so they can start their own side adventure and letting the player go on a mini-adventure to find them later on, leveled up compared to before would be interesting, but being able to have more than the strict limit in any form is almost necessary, I think.
If there are no plans - well, the system works I suppose.
Oh, nice! My initial assumption was an X-at-a-time limit, and that's actually kinda exploitable. (Though, at the same time, would be nice to not need to fire-and-retrain officers if I swap an officered ship between carrier and non-carrier hulls...) This, by contrast... well, if there's any way to really exploit it, I'm not seeing it.
HOI4 handles that by giving commanding officers "Reassignment Duration", a mechanic where reassigning an officer to a different army is not instant and takes time. Buffs from both officers (the officer getting removed from the position and the officer taking his place) do not apply until the replacement officer reaches their post. Some traits can modify this - for example, Erwin Rommel has the "War Hero" and "Media Personality" traits, which modify the Reassignment Duration by 50% and 100% respectively (meaning a Reassignment which takes 10 days would take 25 days instead). I think that crushes just about every form of exploitation.