Here is a video demonstration. Snapshots contain window that is in focus not the whole desktop and for exclusions I assume it would just base it on process name + additional parameters (private browser windows have same process name so must be something additional). You can also add websites for exclusions. Here is an article that lists other things that are not being captured like DRM protected content and one time WhatsApp images.
Also from support article:
In two specific scenarios, Recall will capture snapshots that include InPrivate windows, blocked apps, and blocked websites. If Recall gets launched, or the Now option is selected in Recall, then a snapshot is taken even when InPrivate windows, blocked apps, and blocked websites are displayed. However, these snapshots are not saved by Recall. If you choose to send the information from this snaps
So what you are saying you want a shitty AV that would not recognize a potentially malicious executable? Any normal AV should flag crack as a potential threat due to what it does.
Stick with Defender and whitelist executables you trust. This is computing 101.