It may not be that simple: Microsoft may assume liability but an infringer can still be sued separately. MS may then be on the hook for the court costs. But you can't just categorically shield the users of a product from being sued.
This is the key bit:
"Specifically, if a third party sues a commercial customer for copyright infringement for using Microsoft’s Copilots or the output they generate, we will defend the customer and pay the amount of any adverse judgments or settlements that result from the lawsuit, as long as the customer used the guardrails and content filters we have built into our products."
The 'we will defend' is one important part, I assume that means that you will be using their lawyers rather than your own (which they have in house and so are cheaper to use than the ones that bill you, the would be defendant by the hour).
The second part that matters is that there are conditions on how you are supposed to use the product and crucially: you will have to document that this is how you used it.
But: interesting development, clearly enterprise customers are a bit wary of accidentally engaging in copyright infringement by using the tool and that may well have slowed down adoption.