The main idea behind it is to improve the creation of tab groups for the user. The process is automated when the feature is used, which means that you do not have to create tab groups manually anymore and put tabs into them.
Edge sends information about all open websites to a Microsoft server when the option is selected. The AI processes the request then on the server and returns its suggestions after a moment.
While the automatic tab group creation features of Edge and Chrome look useful, privacy conscious users may want to skip those and create tab groups manually instead.
Having your entire list of open websites submitted to a company server without really knowing what is done with it and how it is stored outweighs the convenience of the feature.
There’s pretty much no reason this has to be done on the cloud. For one example, just download a tab tree sidebar for Firefox. Either the stuff you see in it will be managed by the browser itself, or by something as simple as an extension.
Even calling this feature AI seems rather disingenuous on the part of Microsoft. It looks more like a way to grab data about you and about non-consenting websites…