A: The oval represents tori's shoulders. The large circle represents tori's outstretched arms, meeting at some comfortable point in front at shoulder height. The small circle represents the point of contact on uke; it could be a wrist, an elbow, a shoulder, the jacket, the body, or the head. The important thing to note here is that uke, or the targeted part, typically body or head, is outside tori's circular zone of power. If uke does not allow himself to be drawn into tori's circle, for best technique tori has no choice but to extend his arms to develop power (see C below) for a more linear technique.
B: In the next diagram, tori contacts uke's wrist, elbow, shoulder, body, or head inside the circular zone. Here, uke is more easily brought under control as tori can utilise his circular power more efficiently. For efficient technique, tori maintains circularity in his arms and performs a circular technique. In Judo, think O-goshi with one hand curved behind uke's neck. In Aikido, think kote-gaeshi with uke's wrist in the circle, shiho-nage with uke's elbow in the circle, or irimi-nage with uke's head in the circle.
C: Here, tori's arms are extended forward. In this position, tori needs to make technique with linear movement, not circular. In Aikido, think sumi-otoshi or shomen-ate. In Judo, think ippon seoi-nage or kata seoi-nage. Or, as in B above, think kote-gaeshi, shiho-nage, and irimi-nage etc, but linearly. This position demands that tori adopt a linear technique, which may or may not, at some point, bring uke into tori's circle thus necessitating change.
In Judo, contestants usually meet as in diagram A or C. Many struggle to make their circular techniques work for years and never realise the futility of these positions for circular techniques. What they need to do is to move uke in a linear way to throw, or, to move uke linearly and manipulate the distance such that uke enters the circular zone, as in B, to become the 'victim' of a circular throw. After years of training, a Judoka's body will come to distinguish these differences even if his mind does not -- he will throw well, but may not know why, and will not be able to teach it efficiently. In Aikido, however, 'friendly resistance' makes it even more difficult for the body, let alone the mind, to determine the true and the false in terms of distinguishing between the circular and the linear, with the result that people wander around in darkness, not knowing why something works or not, or worse, not even having their attention drawn to such a question. Thus, beyond beginner, a compliant uke is your enemy.
It is also important to note that when uke is within tori's circular zone, so tori may fall within uke's. Thus, better is he who knows his situation, better is he who has developed the knack to work in this situation, and better is he who has an appropriate technique.
Also to note is that when training the sword, you can hold it with arms extended linearly, as in C, or you can hold it with arms curved, as in B (feeling the sword to be inside your circle). None is more correct than the other, each has its place in training logic. To say one is wrong and the other right is to say you do not understand.