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IANAL. See the part about "grant license". This is all about copyright.

Legalese seems to be a "choose your own adventure"--or rather, "choose your own permutation"--that results in many simple statements. One of those simple statements would be: "For the purposes of improving the software, you grant us license to create derivative works based on your content."

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I get what you’re saying, but consider that I could take someone’s work of art and create infinite derivatives of it, which is not illegal, unless I try to claim them as my own and sell them.

At least in the USA it seems you need permission for derivative works regardless of your intent in making them:

https://www.law.cornell.edu/wex/derivative_work

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