You have to specifically identify and name the people in the photos, otherwise all it knows is that it's a person and throws it into that folder. And if you don't use icloud none of it leaves your device. It does the photo processing locally on the phone. It only knows what you tell it.

https://support.apple.com/en-ca/108795

https://applemagazine.com/find-people-and-pets-in-photos/

I've never took any action it just recognizes faces of those ive taken a good amount of pics with and shows them in my network including automatically naming some of them. Tho not all of them seen under People & Pets have their name automatically listed. But and again it automatically already knows whose in my network so if I take a pic of them using my Apple Glasses the glasses tech or app on iPhone could have the pic focused on them and either blur out others in public or anonmyize/randomize all other faces. This is just an idea that would help solve people's concern with smart glasses and Apple is the privacy company.