I had the impression that tracing a supply line back to the Capital or a Major Port was necessary? I do recall however, seeing something about "two towns."
Here in this image, I've got the French surrounded, but he still has two towns Epinal and Nancy. In a previous game, I remember seeing a little symbol on the enemy units that indicated they were Encircled, and at other times I've seen the "Out of Supply" icon on them, and I'm not seeing it here, so I'm guessing these guys are still in supply and not suffering any encirclement penalties, eh?

So next question: is that realistic? Here are, I dunno, 10 or 15 French Corps, isolated on their northern frontier, still in control of two frontier towns, but totally cut off from their GHQ and their capital and any ports. That would seem to me to be enough to constitute being "surrounded." I mean, after all, how long can whatever stuff is stored up in those two towns hold out? Certainly not indefinitely, though perhaps one month or something?