The search terms are in the referrer URL so sites still receive them. (but SEOs can carry out a direct search on Google and see where they rank anyway).
Don't actually see how it could increase privacy. Well maybe it's an attack on MS's result scraping toolbar. I'm pretty sure IE stops toolbars reading encryted pages, so perhaps it stops their Bing toolbar scraping Google search results.
(and before MS turfers pipe in, MS have been caught red handed, and calling it a 'search signal' doesn't make it anything more than a copy).
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