You need to change those passwords. This is a warning that they were exposed, which has no relationship to you updating your phone.This popped up a little bit ago. I’ve been doing multiple restores and “updating” from 14.6 to 14.5.1 trying to get my smart battery case working. Maybe all the tinkering has something to do with it?
Good point about the Apple ID I forgot to mention. I think it is also a good idea to add more than one trusted phone number to one's Apple account, so that one doesn't get locked out should the main phone be broken or lost.You’re seeing that alert because you’ve got Settings > Passwords > Security Recommendations enabled. I believe it’s enabled by default. It’s a great feature. Even if there was no data leak, the feature will advise which accounts share the same password with a recommendation to make them unique.
I agree with @Apple_Robert about 2FA, and would add that using it for your Apple ID is essential.
Password security recommendations
On devices with iOS, iPadOS, macOS, and visionOS, Password AutoFill marks a user’s saved passwords as weak, compromised, reused, or leaked.support.apple.com
I wonder where it gets it’s info about my passwords that have appeared in the “data leak”? Does this mean my password specifically has been guessed and it’s just floating around out there maybe? I dunno how this stuff works. Or is Apple just guessing that I could be at risk because I rarely change my passwords? Hmm. Maybe this isn’t as serious as I think.