I gather the hole wasnt there when you built it or you'd have noticed right?

Wood boring beetles or that Bee type that likes wood. You may want to treat
the area for that before you get more holes if that is the causitive factor.

There was a knot there where the "hole" is now. It just looks like the
knot fell out of the hole, so to speak --;0

I'm not much of a carpenter, and it's possible the hole was there when
I put it on, but more than likely "fell out" as I was pounding nails.
At any rate, it's not insect or bird damage.

So, again...best fix??