This feature makes use of homomorphic encryption, so apparently the photo itself can't be "seen" by Apple's servers.
It's still very confusing wording as in the Settings app it states "Allow this device to privately match places in your photos with a global index maintained by Apple", which to me implies that the device either downloads the whole index and then looks up places on-device or at least queries it online without sending any photo data, but it seems to send some encrypted and/or hashed variant of the photo(s) instead.
It seems to be done in a privacy-respecting manner, but being on by default and primarily the poor wording in the Settings app is not good.
I do think the article is a bit over-dramatic though when the author starts mentioning "that Apple computers are constantly full of privacy and security vulnerabilities", which - while not entirely wrong - is true for basically every (complex) system.
~EDIT: fix two typos~