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This is not a bug, this is an intended behaviour, but in vanilla is not as visible as with this custom visuals
Right. Comprehensibility comes first. So we don't hide things behind other things (imagine how irritating this could be).
This constrains the art since it means that the art has to try hard not to cover adjacent cells. Which means the trees are quite small compared to what you would want them to be for beauty alone.
This reskin looks great, but like a lot of similar projects it gains a lot by violating constraints that are put in for design, clarity, or comprehensibility reasons (and not just hiding things - there are other problems as well like noisiness and scannability, visual hierarchy, etc). The costs of that aren't obvious on a screenshot, but would become palpable in extended play. In case anyone's wondering why we didn't do this kind of thing in vanilla. RimWorld sacrifices a lot in order to play as well as possible.
Would it look better to hide the object behind the tree but draw a visible outline or shape of the object in visible color over the tree? That way the object doesn't defy logic and you can still figure out that something is hidden behind it.
Possible. Some games do this. It's complex, though, and looks kind of ugly and noisy.