I think they mean what you say is confidential outside the hospital...like they can't go tell your parents or random people who know you what you say or give them information about your treatment and such.

And I didn't have to take one of these mundane 10000 question tests either time I was in the psych ward...so it certainly doesn't always happen, I think that is another thing that depends on the facility. I personally don't see how a written test like that would be beneficial so not sure why they'd have such a thing for psych ward patients.