That is, if someone has some well-known image on their phone, then it can find it, but anything taken themselves is safe?
Doesn't that make this a bit pointless since I don't know anyone that saves images from the internet to their phone. That's weird, right?
There is a very large variety of people out there. It's unlikely that your social bubble contains all the different ways to use a phone. if you search the net the phrase "phone clearing dump" you will find example of people having filled their phones with so much "funny images" that they are now saving them to an online image hosting service.
You probably also don't know anyone who has depictions of sexual abuse of children on their phones, yet it is a thing that exists, and that apple seems to be trying to address.
The world is big and, as you say, weird ineed.