There are numerous threads on this form addressing the questions you have.
There are some users who believe the privacy issues for Windows 10 are being blown out of proportion and their are other users who believe their concern is legitimate.
THIS article shows Microsoft's Updated Software License Terms and calls people who think Microsoft is going to spy on them "conspiracy theorists".
However I would point out that other articles cite Microsoft's website where it said that they "may access, disclose, and preserve your personal information."
THIS article cites Microsoft's website.
It seems though, the link is no longer available.
If you do not agree with this Policy, do not use our products and services or provide Microsoft with your personal data.
Mandatory Disclosures we may access, disclose and preserve your personal information, including your private content (such as the content of your emails, other private communications or files in private folders), when we have a good faith belief that doing so is necessary to:
(1) comply with applicable law or respond to valid legal process from competent authorities, including from law enforcement or other government agencies;
(2) protect our customers, for example to prevent spam or attempts to defraud users of the services, or to help prevent the loss of life or serious injury of anyone;
(3) operate and maintain the security of our services, including to prevent or stop an attack on our computer systems or networks; or
(4) protect the rights or property of Microsoft, including enforcing the terms governing the use of the services – however, if we receive information indicating that someone is using our services to traffic in stolen intellectual or physical property of Microsoft, we will not inspect a customer’s private content ourselves, but we may refer the matter to law enforcement.
So, clearly Microsoft's policy includes some things that are a legitimate cause for privacy concern.
What is not clear is if these clauses mean that Microsoft has the technical ability to do these things and will do them as they feel they have a need to or if the policy is written so that if they receive warrant the end user cannot successfully sue them.
As for changing the initial Windows 10 settings to increase your privacy, take a look at THIS article.
I hope that answers your question.