A privacy policy plays a crucial role in web services by outlining how personal data is collected, used, stored, and shared. It establishes transparency and builds trust with users by informing them about their rights concerning their information. A well-defined privacy policy helps organizations comply with legal standards, such as GDPR or CCPA, minimizing risks associated with data breaches and misuse. By clearly communicating data practices, privacy policies protect both users and businesses, ensuring responsible data management and fostering a secure online environment.