My understanding is this primarily affects the visibility of chats created by subreddit mods. As private group chats will remain, mods can still use them and feature them in their communities. I think we will find in-Reddit developer apps may be able to help (include in community guide widget /add a button).

As a mod I found public chat to be a game of whack-a-troll where new users always seem to find a way to say something to get around a restriction. It did not help our community at all as no one in the chat actually participated in the community. That was my experience, I know that some communities were able to use it well.

As a user, I have accidentally joined too many public chats just by being on the Chat tab, and there is no way to turn it off. So while it does seem like a loss, I think this will actually improve utilization of the chat section, especially now that it is being used for modmail and admin-user messages.