If you read the log below you can begin to see where it doesn't make sense.

In it's current state it's only usable if you have them blind or asleep.

The helpfile as I read it implies that you're supposed to be able to use it to knife them down while they 'bleed' money that they could otherwise heal with. Right now it's checking visibility too soon, and it could be argued it needs to check for just sneak and not hide.

<44%hp 100%m 100%mv 10975tnl (8.54%)> cutpurse arndrilo
Arndrilo would be able see you.

<44%hp 100%m 100%mv 10975tnl (8.54%)> hide
You attempt to hide.

<44%hp 100%m 100%mv 10975tnl (8.54%)> cutpurse arndrilo
You step out of the shadows.
Arndrilo would be able see you.

<44%hp 100%m 100%mv 10975tnl (8.54%)> hide
You attempt to hide.

<44%hp 100%m 100%mv 10975tnl (8.54%)> hide
You attempt to hide.

<46%hp 100%m 100%mv 10975tnl (8.54%)> help cutpurse
CUTPURSE
Syntax: cutpurse <victim>

A pickpocket thief can take their dagger and slit the purse of their enemy.
This will create an opening that coins may drop from when they move or fight.

See also: THIEVES 'PICKPOCKET PATH'

<46%hp 100%m 100%mv 10975tnl (8.54%)> cutpurse arndrilo
You step out of the shadows.
Arndrilo would be able see you.

<46%hp 100%m 100%mv 10975tnl (8.54%)> hide
You attempt to hide.

<46%hp 100%m 100%mv 10975tnl (8.54%)> cutpurse arndrilo
You step out of the shadows.
Arndrilo would be able see you.

<46%hp 100%m 100%mv 10975tnl (8.54%)> hide
You attempt to hide.

n/t