NOOB'erfication Oil Level Question

OK. I've always checked my oil with the engine off. Never really thought about it before.

Then, I was reading about using over-sized oil filters. And was puzzled for a moment because the way it's positioned, it pours the oil back into the pan when the engine is off (doesn't it?)...
And the over-sized filter increases your oil level by ~ 1/2 qt. +/-

But if it drains back into the oil pan, it would show full without that extra 1/2 qt.

So, my NOOB'erfication question of the day is, should I be topping off the oil level with the engine running?
Or as I've always done it - engine off?

...OR am I mistaken on that filter draining into the pan when the engine is off? :o

Engine off