Apple says this pauses automatic updates and “background tasks” while you’re away from Wi-Fi, though it doesn’t go into too much detail about what those background tasks are. One tradeoff that is specifically mentioned is a lower bitrate on FaceTime calls.
The options you see alongside Low Data Mode are going to vary depending on your network. For example, you might see an option to allow more data on 5G, which means your iPhone will use a faster 5G connection over Wi-Fi, if one is available.
Don’t forget there’s always airplane mode if you want to make absolutely sure that apps aren’t transferring any data over cell networks or Wi-Fi. A swipe down from the top-right corner of the screen will reveal the Control Center, and you can then tap the airplane icon to enable or disable airplane mode.