appspot.com is not a single site, but a suffix like .github.io shared by independent sites.
See Public Suffix List: https://publicsuffix.org/list/public_suffix_list.dat

Got it! Thanks for the clarification. Although it was better to use a common example like '*.edu.ac'.

I agree the documentation is unclear and even misleading.
Also, if Public Suffix List is used internally, it must be mentioned explicitly.

Yep, externally_connectable uses Public Suffix List internally [1] so the documentation should mention it explicitly.
[1]: https://cs.chromium.org/chromium/src/net/base/registry_controlled_domains/effective_tld_names.dat

Actually I expected to be able to use 'https://*.localhost/*' for my tests but I can't. Is localhost a suffix too?

You can add a dummy domain to etc/hosts that resolves to 127.0.0.1
In Windows it's %windir%\System32\drivers\etc\hosts

Yes I have defined multiple domains (e.g. srv1.localhost, srv2.localhost, etc) in hosts file which point to different local IPs (e.g. 192.168.1.10, 192.168.1.11, etc) but it seems I have to list the domains in the manifest file and can not use *.localhost.

Not sure localhost can be used as a suffix.
I meant something more realistic like srv1.com, for example.

Then *.com would be invalid unless I use a real domain like *.my-domain.com.
I'll try that. Thanks for your thoughts any way.

Adding appropriate label for further triage.

Thanks!

Adding TE-NeedsTriageHelp for moving this Unconfirmed issue out of TE's triaging bucket.