As an adult, I heard someone talk about one of the gates in the wall to Jerusalem was named the "eye of the needle" because of its shape. If a camel was loaded up that exceeded a certain height, the camel could not fit through the gate. It was this situation that the biblical passage was supposedly referring. So as with most things, context really helped. </random_tangent>
I could be totally wrong, of course. Maybe they started naming holes in dilapidated walls that to bring tourists/pilgrims.
Did a quick google for pic examples; https://patmcinerney.wordpress.com/2014/06/30/the-church-of-...