Orange dot located on top right of bar of iPhone 7

Over long years of experience I love having a light telling me a mic is hot. Can save embarrassment. Start a phone call with someone and touch the mute button and the light will go off. Touch it again and it comes back on. If you train yourself to look for that light it can save you some embarrassment. And it allows others to look at your iPhone and see the microphone is on.

No, if your microphone is not clear it is either dirty, damaged, or your Audio IC on the logic board is starting to come loose.

That light tells you the microphone is turned on.

That light is an indicator that the microphone is active as it must be when making a call. It is a new feature with iOS 14.