I haven’t seen anyone say that this feature actually works yet, so I tried it myself:
- Installed iOS 16.1 beta 3
- (Against my better judgment) instructed the Developer settings on the phone to install the beta firmware on my AirPods Pro gen 1, which it eventually did
- Enabled Adaptive Transparency in the settings
- Put in my AirPods on ANC mode to start with and started my incredibly loud NutraNinja blender operating
- Left the room and toggled to transparency mode, then slowly re-entered the room and walked towards the blender
- I can confirm that the volume did not diminish in any way.
Conclusion: Either this new toggle in the settings is a mistake, or the feature is simply not working yet.