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As far as I understand it Cloudflare's DNS proxy service is for it's authoritative DNS service (and therefore only transfers content of Cloudflare customers), while the parent referred to the DNS resolver (1.1.1.1) where arbitrary sites are looked up.

They probably mean the copyrighted material isn't crossing their servers. Unless you are somehow encoding it in DNS records...

For DNS specifically, it is analogous to saying a phone book shouldn't be liable for listing the phone number of someone who sells pirated DVDs.

I think what you call "DNS proxy service" is what I'm referring to as their CDN. As referenced by a sibling comment, I meant their public recursive DNS resolver service when I said "DNS resolutions."

No, I'm not. I'm talking about the ability to completely hide your IP address from both DNS and network traffic.

Ahh, you mean Cloudflare Tunnel then?

That's their CDN with a twist.