According to Kuhnhausen on Page 239 of The Colt Single Action Revolvers, the hole was used for selecting hammers with respect to correct firing pin alignment to firing pin port (frame). A rod was inserted through the .10" hole and a hammer was tested in a frame. In this way, the stacking of dimensional errors for hammer manufacture and, separately, frame manufacture could be aligned so a selected hammer would work with a given frame. In other words, to make sure a hammer will work before fitting it to a gun.
Secondarily, the alignment port could be used with the old style (first and second generation) fixed firing pin guns for driving a broken pin out of the hammer for replacement.