Hi goatanony23,
The prompt you are seeing is related to iCloud encrypted data. Per iCloud data security overview:
"End-to-end encrypted data can be decrypted only on your trusted devices where you’re signed in with your Apple ID. No one else can access your end-to-end encrypted data — not even Apple — and this data remains secure even in the case of a data breach in the cloud. If you lose access to your account, only you can recover this data, using your device passcode or password, recovery contact, or recovery key."(emphasis added)
and also:
"If you enable Advanced Data Protection and then lose access to your account, Apple will not have the encryption keys to help you recover it — you’ll need to use your device passcode or password, a recovery contact, or a personal recovery key. Because the majority of your iCloud data will be protected by end-to-end encryption, you’ll be guided to set up at least one recovery contact or recovery key before you turn on Advanced Data Protection. You must also update all your Apple devices to a software version that supports this feature."
Without that password it would not be possible to restore end-to-end encrypted data from iCloud. If you turn off the services outlined in that article that indicate they use "End-to-end" and "Trusted Devices" in the chart the prompt should be removed. Recovery of that data without the password would not be possible.
Regards.
