There are a few specialty keyboards that work like this. They need to send your keystrokes to a server to work. Because this can easily be abused, Apple requires the full and rather scary disclosure you are seeing.
Hold in mind that the app only sees the info that you type when you use their keyboard. Info you type when you use the system keyboard is still secure.
Also, iOS won’t let you use a third party kebyoard to type in passwords. It automaticly switches back to the system keyboard when password input fields are presented.
Despite this, it’s a good idea to check out the developer and make sure they are resonably well known and dependable before installing a keyboard app. It’s possible they might sneak something past Apple temporarily.