How exactly do conditions like this work in practice?

I can go ahead and write a ToS or even a contract that says "if you don't give me a blue M&M on Saturday 29 October 2022, you owe me $1M". I can get a client to sign it, perhaps it's part of my conditions as a freelancer.

I can't realistically see any court enforcing that.

As far as I can tell PayPal can only get away with this nonsense because they hold your money anyway. It's exactly the sort of reason people are fighting against cashless/custodial financial systems.