To make an analogy: I think a good way to think about it is that the 7nm node doesn't actually produce chips with 7nm features, it uses a "knife" (actually it's a lithography process) which is able to cut things as small as 7nm . That enables it to be more precise than a bigger "knife" so even though the size of the chip features is >7nm they are still able to be smaller than features cut with a 10nm "knife".
I don't actually know anything about chip production. But that's what I've picked up from HN.
One thing people are trying to convery every time this question comes up is that "7nm" is really just a marketing number, it's not tied to any particular physical dimension, and it's not how small the knife is able to cut.
The knife does get better, it's just not something that the Xnm node names measure directly.
That's kinda the idea. There are also several different layers each with its own resolution.
Also, well, that number isn't really the actual resolution of the finest layer, but is some "marketing processed" message that should give you an idea of the chips performance. It used to have the meaning you stated, but things changed a while ago.
I don't actually know anything about chip production. But that's what I've picked up from HN.