From Mail.app:
Protect Mail Activity helps protect your privacy by preventing email senders, including Apple, from learning information about your Mail activity. When you receive an email in the Mail app, rather than downloading remote content when you open an email, Protect Mail Activity downloads remote content in the background by default — regardless of whether you engage with the email. Apple does not learn any information about the content.
In addition, Protect Mail Activity routes all remote content downloaded by Mail through two separate relays operated by different entities. The first knows your IP address but not the remote Mail content you receive. The second knows the remote Mail content you receive but not your IP address, instead providing a generalised identity to the destination. This way, no single entity has the information to identify both you and the remote Mail content you receive. Senders can’t use your IP address as a unique identifier to connect your activity across websites or apps to build a profile about you.
If you choose to disable Protect Mail Activity, the Hide IP Address feature will still mask your IP address using the same two-separate-internet-relays design.