A clipping mask only affects the layer below it. Let's do it in practice. Fill the lower layer of the MM layer with a smaller square, hold down the Alt key and click between the two layers to create a clipping mask for the MM layer. Of course, you can also create it in the menu. See the effect, drag the square layer again, and see the effect again.
There are many applications of clipping masks, which I cannot go into details. For example, when cutting out pictures, you can modify the edges and create some special effects, as shown below: