It's really about trade-offs, IMO.
With any of the "password managers", you gain the security of it becoming practical to use hard-to-guess, unique passwords for all the sites you visit. That means if (when, really!) a site has a security breach, the hacker doesn't obtain anything very useful by getting your login/password info stored there. It was just some randomized password your password manager generated for it, or at least a unique one you made up just for that one site.
The weak spot for your password security becomes the master password for the manager. The good thing about traditional PW managers (Bitwarden, LastPass, 1Password and so on) is that master password isn't stored in the cloud anyplace. It only exists on your local machine. So even if the cloud service that contains your password vault is hacked, they can't do anything with your password data. But ... if anyone gets ahold of that master password via a keylogger secretly installed on your computer or what-not? Well - it's "game over" for you!
Schemes like Apple proposes here just change things around so you can use biometric data in place of a master password you type in. Since they say they will back up your data to iCloud though? That means technically, they either have your biometric info OR some kind of equivalent password hash that it translates into, now stored in the cloud. So you'd be trusting Apple to some extent not to ever access your password vault contents. And yes, someone compromising your iCloud login would seem to be as bad as someone getting their hands on your master password to log into traditional password vaults.
You're right about the compromise but to entrust one vendor to manage access to your identity and credentials together is dangerous even if they are competent and the system is well-designed and validated.
It's roughly speaking opting your existence into a zero trust model where there is one trustee who is not you. This is fine where corporates own their data and control their employee reach but it must be considered that an individual owns their own reach. But Apple owns it here thus you are subordinate to Apple always.
This is one reason I don't use the hide my email feature as well. These are distributed tangible identities which are permanently tied to @icloud.com suffixed addresses.