The operation requires that the polygon input cannot have holes. Certain tools, such as Extract by Polygon, use a polygon to define the area that should be evaluated or extracted. Only the cells inside the polygon will be processed or selected. There cannot be any smaller polygons (called "donut holes" or "islands") within the larger polygon that defines the area to be processed. There cannot be any smaller polygons within the larger polygon to define the area to be removed from the processing or selection.
Make sure that the polygon defining the area for processing or selecting does not contain any subpolygons.