The purpose of this app is simple. Every Android app has permissions to do something like: read your contacts, access your GPS location, read your SMS, call logs, SD card ... whatever.
If you install an app from the Market – you rarely look at these permissions, and when updating an app – you do it even less.
And sometime when you have a lot of apps on your mobile – no one has an overview of what and why an app may do something.
Of course you can also later see through these permissions in the Android system, however, you have to click through them.
Privacy Monitor on the other hand offers you a quick overview of all the installed apps and their permissions and provides you a kind of score to quickly see which apps have most of the permissions.
Whether you trust an app or not – is up to you. You have to see who has created this app, how are the comments in the Market, etc. but Privacy Monitor is a good little helper.
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