I have spent a morning struggling with the same issue.
As far as I can see this is entirely unsatisfactory. Apple essentially default users not using ICloud+ to use Private Relay (or at least something that looks the same) and do not provide a means to obviously disable it.
I only noticed this when adjusting settings on my home network and testing some blocked domains using my Iphone.
I tried the settings above. Additionally I found this link regarding preparing your network and have added NXDOMAIN to mask.icloud.com and mask-h2.icloud.com as instructed:
Prepare Your Network or Web Server for iCloud Private Relay - Support - Apple Developer
There are some also some more details about it here.
https://www.apple.com/privacy/docs/iCloud_Private_Relay_Overview_Dec2021.PDF
- I have seen no warning as stated.
2. DNS does behave as I expect for domains I did not access before changing rules, ie. they are blocked by my local dns server.
I suspect then that Private Relay as described may not be used at least not fully.
Those domains I accessed from Safari before changing anything, are still accessible from my Iphone (not from the router or other devices on the network). So it seems something is cached relating to the Private Relay. I have tried to clear the cache, and flush the dns, deleting all data in Safari, resetting network settings. But it is persistent i still reach the websites I have blocked.
I presume at some point TTL will expire and they will in fact be blocked but it is deeply frustrating that Apple have chosen obfuscation over simplicity and cannot provide proper documentation for both users and network admins.
In these times I am acutely aware of the importance of privacy and freedom, that is presumably a motivating factor in introducing this technology. But that there is not a simple means for IOS users to turn it on and off (and know that it is on or off) runs counter to that motivation.