The word is commonly believed to derive from the practice of using the wind to assist with the turn.
[1] Another etymology, however, is the Old English word for turn - "windan", (pronounced with a short I (as in windlass, a handle for winding (long I) gears)).
[2] Much UK canal terminology comes from spoken rather than written tradition and from bargees who did not read or write.
Winding holes are typically indentations in the off-side (non-towpath side) of the canal, allowing sufficient space to turn the boat.
A turning boat inserts its bow into the notch and swings the stern round.