They are scanning images on iPhones and iPads prior to uploading those images to iCloud. If you're not uploading images to iCloud, your photos won't be scanned -- but if you are using iCloud, Apple will absolutely check images on your device.
From Apple's Child Safety page:
> Apple’s method of detecting known CSAM is designed with user privacy in mind. Instead of scanning images in the cloud, the system performs on-device matching using a database of known CSAM image hashes provided by NCMEC and other child safety organizations. Apple further transforms this database into an unreadable set of hashes that is securely stored on users’ devices.
> Before an image is stored in iCloud Photos, an on-device matching process is performed for that image against the known CSAM hashes. This matching process is powered by a cryptographic technology called private set intersection, which determines if there is a match without revealing the result. The device creates a cryptographic safety voucher that encodes the match result along with additional encrypted data about the image. This voucher is uploaded to iCloud Photos along with the image.