Is it true that Google Sites is not ideal for SEO purposes?
That depends. First of all, "Google Sites can and do get indexed in Google Search." That is one quote from John Mueller of Google Search Console's team.
One problem is the two versions of URLs available on Google Sites: the long sites.google.com/... URL, and the custom domain URL like www.domainsample.com . Google Sites content always exists on these two dimensions. Actually Squarespace websites operate in the same fashion. So what is the difference here?
Google Sites lack a true sitemap and canonical tool to indicate to Google Search which site version is the authority. So this may present some confusion if your long sites URL is indexed and competing in page rank. In the long run this should be a moot point because the custom domain will win out. That leads to another truth being, always use a custom domain right from the beginning and avoid a mess. Also, promote that custom domain as the authoritative source of your unique, valuable content. Where there are limitations, there are workarounds. But if SEO is the primary purpose of your site, then I'd have to agree, Sites isn't ideal. That being said, it is absolutely satisfactory for most websites that aren't massive blogs, affiliate link farms or ecommerce giants.
(Updated 9/7/2023)