Let’s say you use a VPN server in New York. When your device wants to send a message to some destination it instead sends an encrypted message to the VPN server, and the VPN server sends the original message to the destination with address details changed so the receiver thinks the message comes from someone in New York.
So a hacker with unlimited resources would find that you sent a VPN message to a server in New York, and that a VPN server in New York sent a non-vpn message to some recipient. There would be no connection between the messages. And while your isp or gchq might be able to observe your internet connection they wouldn’t be able to observe the vpn server. So they will notice an http message from your device at your home, but not an http message from some random place in New York to a random receiver.
Your privacy is not reduced. If you used http then you go from “no privacy at all” to “no privacy if an attacker can find your needle in the vpn server’s hay stack”