I believe it wanted to mean "privacy" there. Theoretically, it's easier to break Tor->clearnet than Tor->hidden service. It'd be better to configure your node connect only with hidden services:
onlynet=onion
2. Unless you and other node use encryption (this is recent addition based on BIP 324), the connection isn't encrypted.
From the other person's Bitcoin node to your exit node? Yes, but from your node to the exit node the connection is encrypted.