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ISP <---> Internet
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ISP ---> Internet --> VPN <--> Internet
Your ISP cannot see what you do on the internet when you use a VPN, except for the fact that you are connecting to a VPN. The VPN is connecting to the internet for you, and your ISP cannot see anything beyond your and your VPN sharing encrypted data.The point is its more than just an IP. Websites you connect to aren't actually sites you're connecting to, your VPN is connecting to them for you and sending you back what it sees, and so your real IP is hidden and, in theory, the encryption between the VPN and yourself makes it impossible for your ISP to see what it is you're doing online, it only sees garbled nonsense. But when your computer receives that garbled nonsense, it turns it into, for instance, data that will load into your browser and show you a site you don't want your ISP to know you are visiting.
There is always the danger of your VPN/hosting provider handing over your actual IP and a list of all your traffic, neatly folded and ironed in a log, over to a company for money. This is why some people avoid free VPNs and others set up their own on a server.
This is an arms race. If there is value in my data, surely someone is going to try to obtain it from the data flowing out of the VPN. No?
One point of popular VPNs and overlay networks like Tor is that so many people do so many different things on the same IP that it becomes impossible to tell who's who from the thousands of people making outgoing connections from the same address, and the overlapping traffic is anonymizing in of itself. But yes no guarantee of privacy.
Take into account that its better to have some security than no security at all.
The argument you're making rings true, but I can say "Why have a lock on your door if someone can pick it and enter anyway?"
Traditionally a VPN was an overlay network, that interconnected a number of private networks and/or individual hosts over the Internet. For example, between your friends you could set up IPsec so that peer-to-peer IP traffic was encrypted between all participants. There's no client or server role in IPsec so either side can initiate the connection.
Then, it was used as a moniker for corporate PC software that connected the salaryman on the road to the mothership "intranet". Which was mostly about selectively punching holes in their own "intranet + firewall" network setup.
Then lately, the term has seen use in home computer use to circumvent their last mile ISP, to impose a small level of obfuscation in order to BitTorrent stuff more safely or curb ISP data collection. The traffic is still piped out to the public Internet at the VPN provider.
It's kind of a full circle and the term VPN does not make any sense for the latter use. You make a "virtual private" connection to the public internet, and there is nobody on the VPN that you share privacy with?