Is this essentially a VPN?

No, it’s not a VPN. A VPN provides a secure tunnel between your device and a private network. In the case of VPNs used by people to access the Internet, that means between your phone and the VPN provider. It effectively gives you absolutely nothing when it comes to privacy or security. In fact, since the VPN provider has access to all of your internet traffic, your privacy and security are actually much more likely to be compromised by using a VPN to access the Internet.

iCloud Private relay is a ‘double proxy’ setup. It basically does what you thought the VPN was doing when you accessed the Internet, only with significantly better privacy protections.