Cadet is correct, it's bore diameter. Also, keep in mind this does not indicate an "Exact" bore diameter. It meant that at time of proof the bore would accept a 40 gauge plug of .488" diameter but would not accept a 39 gauge plug of .492" diameter. The actual diameter of bore could have been anywhere in between.
The difference between your bore marked 40 & cadets marked 39 may be no more than a couple of thousandths. Even if they were both to exact size it would only be .004" difference.

Miller/TN
I Didn't Say Everything I Said, Yogi Berra