"Retain items for a specific Period" Vs "Only Delete items .." inside Retention policies

The first policy retains the file in place for 7 years from when the file was created, and then the file is automatically deleted. This policy will stop your data from being permanently within the retention window.  If the user edits or deletes the file within the retention period, then a copy of the file is copied to the Preservation Hold library (retained in place). Once the file reaches the end of retention (7 years from when the file was created the file will automatically be deleted. This also applies to the copies of files held in the Preservation Hold library. With this type of policy, you need to consider your SharePoint storage because the Preservation Hold library, where all the copies of edited and deleted files are held, is included in the scope of your SharePoint storage quota.

The second policy has no retention action. So users can delete files at any time, and the file will be deleted. The file is automatically deleted seven years after the file was created. 

Reference Learn about retention for SharePoint and OneDrive | Microsoft Learn

and Learn about retention policies & labels to retain or delete | Microsoft Learn.