What is the optional argument in C# interpolated string for?

It's the minimum width to use for that field, not the maximum. Since your string is longer than the 5 characters you specify for the width, the field is extended to the length of your string. You'll see the difference more dramatically with a longer width:

var p = Process.GetCurrentProcess();
$"Process name is {p.ProcessName, 50}".Dump();

yields:

Process name is                                  LINQPad.UserQuery

A positive field size is right-justified; a negative field size is left-justified.

The documentation is better on the Composite Formatting page of MSDN:

The optional alignment component is a signed integer indicating the preferred formatted field width. If the value of alignment is less than the length of the formatted string, alignment is ignored and the length of the formatted string is used as the field width. The formatted data in the field is right-aligned if alignment is positive and left-aligned if alignment is negative. If padding is necessary, white space is used. The comma is required if alignment is specified.

The number is the alignment, documented in the Alignment Component here.

The formatted data in the field is right-aligned if alignment is positive and left-aligned if alignment is negative.

In your example, alignment will pad the p.ProcessName with spaces if it is less than 5 characters long. Where string length is less than the absolute value of alignment (like in your example), alignment has no effect.

Example

var text = "MyText";
Console.WriteLine($"x{text}x");
Console.WriteLine($"x{text, 3}x");
Console.WriteLine($"x{text, 10}x");
Console.WriteLine($"x{text, -10}x");

Result

xMyTextx
xMyTextx
x    MyTextx
xMyText    x