Going over Meta it should be clear that VLQ flags are not an exact science and seem to have many borderline cases where one mod will accept what another will decline.
In this case, I guess it was declined because, presumably, a fairly simple edit, suggested by the the reason used for putting the question on hold ("Off-topic --> must demonstrate a minimal understanding of the problem being solved" ) would make it salvageable: If the OP actually found the algorithm or a description of it and showed how he tried to implement it. Or if he found a description of the algorithm and asked for help in understanding it, he could then be guided towards Programmers or CS.
It is likely it would still not be a good question, but it could be on topic or closer to it - and VLQ is just one step below spam as is said in the post you reference yourself:
The VLQ flag now carries a downvote from community. It is like "spam flag lite", meaning, no reputation penalty but like spam, it incurs a downvote from the community user.
Also, I think that if VLQ applied to the question you flagged, it would apply to some 75% of all closed questions on the site, which would render the reason useless. In this case, the OP is soliciting for code without having tried anything - it is then better to provide him the most accurate reason when it exists; something he can presumably fix in order to get the question reopened.
See also this answer for an example of a question that I think matches the one in your case. Quoting from the linked answer by RGraham:
This question isn't "very low quality" because it doesn't have any formatting or content problems as such - it's just a terrible format for Stack Overflow and very unclear what they are asking. Someone from the community would probably vote to close this as either "off-topic" or "unclear what you're asking" instead.
And here and here is a moderator's take on this:
Put another way, if I'm not comfortable outright deleting a post, I'm going to decline the VLQ flag.
And Atwood's definition:
Not just bad but embarrassingly bad.