Yup. It hides your identify from the relay you're connecting to, but the relay knows your nostr account obviously

A VPN does the same thing and depending on which you choose, it may actually work better. I have had this discussion before, weighing the pros and cons of different obfuscation methods versus the inconvenience of those methods and to be perfectly honest, there is no one on here important enough to go full tinfoil hat on your Nostr experience. To be clearer, I don’t use a VPN because I am on Nostr, I don’t need it here, but it’s on anyways and the extra protection doesn’t hinder my experience on here at all so there is no reason for me to turn it off.