I don't seem to be seeing this yet on my Pixel 2 XL but it can be important for not only those who are hearing impaired but also those wearing headphones, asleep, etc. Sounds can include a baby crying, water running, a smoke alarm, knocking, a doorbell ringing, baby sounds, and more.
The function works entirely offline without passing data to the cloud. If you do not see the options in Settings you can install both Live Transcribe and Sound Notifications apps from Google Play.
It appears that iOS 14 can also do a similar thing.
See Android’s new sound notifications can let you know when your dog is barking
Android can also listen for things like sirens and smoke alarms.