The round hole in the middle of the cassette near the tape path is designed to have a light bulb on a stick inserted into it.

Most of the tape is (approximately) opaque due to the magnetic recording media, but the very ends are transparent. If you open the cassette's lid and look at the uncovered ends of the cassette, you'll see a hole on each end that has a path through the cartridge to the light bulb hole, only interrupted by the tape itself. Photoreceptors in the VCR sit just outside those holes, and if light is detected it means that the clear leader is starting to unwind from the spool meaning the tape is over, so this is how the VCR knows to stop the tape. This is why so many VCRs and rewinders glow inside.

Later hardware swapped it for an infrared LED and detectors but still did the job optically.

Each frame of video on VHS actually occupies a diagonal section of the tape. That allows the width of the tape to be effectively longer which means it can store more information. It's also why the image will jitter a bit when the tape is paused since there's multiple frames of data under the read head at any given time.