After a protracted case with Esri Technical Support we found that:
1) Manually cloning a Python environment for ArcGIS Pro (2.5.2) using the copy and paste method outlined above results in an environment that displays in Pro, but can't have any packages installed or updated.
2) Editing the .condarc file located at :\Program Files\ArcGIS\Pro\bin\Python to include a non-indented line specifying: ssl_verify: False did allow us to clone a fully-functional Python environment in the Pro Manage Environments window. We have a SSL intercept in our environment, so that was the cause of the issue in our case.
Worth noting is that the offline mode is broken in Conda, so if you try to specify offline mode and are having SSL or other connectivity issues the cloning may still fail because it's still trying to reach a remote server to clone some packages.
If you hover of the error icon it will sometimes display one or more error messages, which in some cases contain useful information.
Dan Patterson will have a better understanding of how all of this does and should work, but that's what I can share based on recent experience of my self and others.
Somewhat related, I've found that the Update Packages doesn't appear to reflect accurate information or work at 2.5.2, but Technical Support is still investigating that after reproducing the issues.