You are correct. This option configures the firewall to allow all connections from Azure, including connections from the subscriptions of other customers. If you enable "Allow Azure Services and resources to access this server", make sure that your login and user permissions limit access to authorized users only.
However, you can secure your Azure SQL Databases using private endpoints, and here you will find a tutorial. Once you have set up your private endpoint to access the Azure SQL Database, you can configure Azure services like Azure Data Factory to use that secure channel to communicate with your Azure SQL databases.