The idea behind TPM-locked boot is that you can boot into your system unattended, but it stops booting into any other system. Typically no password is needed, but you can also assign an additional (non-user) password if you want.

This is nice if you trust your system to be basically secure. Nothing else can access its filesystems, so no external tool can be used to break into it. Rescue disks can not access any data without knowing a special rescue key -- so make sure to set one up! A nice side effiect is that the key is only available while setting up disks in the initrd and totally inaccessible at any other time. That makes it very hard to extract the password once the system is running.

You can encrypt the home directories of users using other services like systemd-homed. That will prevent anyone from accessing any data in the user's directory while that user is logged out. Homed will basically use your password to unlock your disk and if that works, then the password is accepted. So you do not need that user to be listed in the traditional /etc/passwd file, which is useful as you can just copy the users homedir image file onto another system to move a user account over.