One of the reasons most people don't read privacy policies is because, to use an app or service, you don't actually have a choice. It's almost always just another screen you have to click through to get to what you want. If you don't, you can't use the app.
That's exactly what happened with WhatsApp.
If you don't accept the policy when you see the prompt, eventually it will become persistent and most features will stop working. When that happens, your account will then be subject to they company's standard deletion policy, which means that you'll lose your account altogether after 120 days.
It won't, however, know anything about the contents of those conversations. That part hasn't changed.
The reason Facebook is forcing this on users is they same reason it does everything--to make it harder to eliminate Facebook from your life. It's the same reason it is forcing users to connect its other messaging apps, Messenger and Instagram, another feature absolutely no one is asking for.
The more integrated Facebook's apps are, the easier it is to track all of your information and use it to show you ads. The more time you spend on Facebook, the more opportunities it has to monetize your engagement and personal information. That's especially important now that Apple's App Tracking Transparency feature has gone into effect and the vast majority of users are opting-out. The more first-party data Facebook can collect and share between its own apps, the less it is affected by the limitation on sharing third-party data.
WhatsApp, of course, doesn't show you ads, and Facebook says that’s not changing. It also doesn't generate any significant amount of revenue for Facebook. Considering its the world's largest messaging app, that's a remarkable fact.
Facebook is leveraging WhatsApp's position to further the growth of its data monetization engine on Facebook. That may be playing hardball, but from Facebook, it's really exactly what you would expect.