The 1099-R you received is correct.
Contrary to common assumptions, the 20% is a withholding tax just like on a W-2 (or a 1099-R for pensions); the correct Box 1 amount includes the tax that was withheld. (That's what the language quoted in the OP actually says; it's the amount before the tax was withheld, i.e., $31,250.) You will be taxed on the full $31,250, less any rollovers; the 20% withholding ($6,250) will be credited against your income tax due just like W-2 or other withholding.
If you rolled over only the $25,000, you will owe tax (plus 10% penalty if applicable) on the $6,250 because that amount was paid out but not rolled over. That is why "direct rollovers" (i.e., 401(k) provider cuts check directly to the provider of your IRA or other plan), though more complicated, are strongly preferred: If the 401(k) sends you the check they must withhold 20%, which you must make up from other funds to avoid tax & possible penalties on the 20%. (That should have been explained to you in a "special tax notice" from your 401(k) provider before you received the check.)
