They are actually very transparent about the telemetry they collect, and they offer granular control. There is a log of all events sent to MS, and a page in settings dedicated to the different types of telemetry they can be enabled.
Where is the log stored? All I can find online are some instructions that seem out of date as they don't refer to the interface I see (or I don't understand them): "You can inspect telemetry events in the Output panel by setting the log level to Trace using Developer: Set Log Level from the Command Palette." [1]
The "page" in settings consists of just two options, and the complete descriptions of the types of information they collect are "crash reports" and "usage data and errors". That seems the opposite of transparent and granular. Am I missing something?
Windows has an overarching telemetry collection system and VSCode might use that on Windows.
There is an application in the Microsoft store you can install that lets you view all telemetry collected by Microsoft, and the actual data is encrypted. The metadata (which tells you WHAT is being collected) is not. Knowing the people I have worked with in the past, this is to securely prevent modification by users before the data is actually sent. I've worked with lots of people who would modify that data to attempt to get a feature added that they wanted or just to screw with MS.
That tool also gives you the option to delete all telemetry sent from that machine in Microsoft's possession.
The command pallette is what you see when you press CTRL+SHIFT+P, and typing 'set log level' in that dialog will bring up a search result you can click to set the log level' (the level of stuff that gets shown in the Output pane).
Setting that to "Trace" will show the telemetry being sent in the Output pane of the interface, amongst a bunch of other stuff, I am sure.
