Dan

The rule in one line, which I wrote on a note years ago and still use: lock what must not move, leave free what must follow.

Worked through your case, imagining the formula being copied:

• Copied right from A2 to B2, C2 and so on. Column must not move, so $E.
• Copied down from A2 to A3, A4. Row must follow, so 2 plain.

Hence $E2. Both halves are decisions, not conventions.

The other three combinations, so you can recognise what you saw:

• E2 — nothing locked. As it copies right it looks at F, G, H. You get colour appearing in unrelated columns and it looks random.
• $E$2 — both locked. Every cell in the range checks the same single cell, so either everything colours or nothing does. That is your all-or-nothing result.
• E$2 — row locked, column free. Every row checks row 2, so the whole block matches row 2's status.

The most common practical mistake after those is the range not starting where you think. If your range starts at A2 the formula is written for row 2; if you selected from A1 including the header, write it for row 1 or everything is off by one. That is the "once the wrong rows" case.