The Apple feature discussed here is for photos being synched to iCloud Photos. It does not scan arbitrary local content.
Yet.
Before it was "only content uploaded to iCloud is scanned" and now it's "photos are scanned on-device". That's frog boiling that tomorrow easily becomes "arbitrary files are scanned anywhere on the device".
They could have just had a local failure. I suspect there were a lot of arguments around this point - should they be making an attempt merely to prevent such content from their servers, or to detect/report behaviors which may be illegal and harmful.