Someone shared a video with me in which clouds were forming a ring around the Sun. I took this screen shot of that video:
What is the reason behind this?
This optical phenomenon is called a 22° halo which is a subset of other halos. This arises from sunlight refracting through hexagonal ice crystals, which can be found in high level cirrus clouds. Light that would otherwise not make it to your eye enters an ice crystal and then exits at an angle of approximately 22 degrees. This produces the arc of light you see in the video. You see (inverted) rainbow coloring of the halo because the light is not uniformly refracted but varies from 21.7 degrees for red photons to 22.5 degrees for violet photons.
Image by donalbein, Wikemedia Commons, CC-By-SA-2.5 https://commons.wikimedia.org/wiki/File:Path_of_rays_in_a_hexagonal_prism.png
There are many more optical phenomenon you can see, but all are based around sunlight and the optical properties of ice crystals and water droplets. Here is a phenomenal picture taken in winter showing many examples:
There's no hole. Are you referring to the sky inside the halo looking darker than the sky outside? If so, the same phenomenon, known as Alexander's band, happens with rainbows. The reason is that light can only deviate through a certain range of angles when it passes through the ice crystals that cause the halo. In particular, light can spread outwards from the halo, causing that area to be brighter because it's receiving more light and reflecting it to you, but not inwards, causing that area to appear darker.
The effect is reversed compared to rainbows, since rainbows are a reflection phenomenon, whereas haloes are a transmission phenomenon. That is, the halo is seen when you're facing the sun, with its light passing through the cloud; a rainbow is seen when you have your back to the sun, with its light reflecting from the water droplets. You'll notice that the halo has the red band on the inside, whereas a rainbow has the red band on the outside.