In a March 1 release, Microsoft is warning customers using Office, Xbox, Skype, and other products that the company is prohibiting offensive language and inappropriate content starting on May 1. “Don’t publicly display or use the Services to share inappropriate content or material (involving, for example, nudity, bestiality, pornography, offensive language, graphic violence, or criminal activity),” Microsoft warns in a portion of their new codes of conduct.
Microsoft also added that the company plans on “investigating” users who are accused of violating the new policy and will block content from being sent to other people. “When investigating alleged violations of these Terms, Microsoft reserves the right to review Your Content in order to resolve the issue,” the new policy states.

Source: Microsoft To Ban ‘Offensive Language’ And Monitor Your Private Account « CBS Dallas / Fort Worth
The implication is that Microsoft will review and censor emails and documents you store in the OneDrive online cloud service.
UPDATE: The actual text of the new privacy agreement reads:

iv. Don’t publicly display or use the Services to share inappropriate content or material (involving, for example, nudity, bestiality, pornography, offensive language, graphic violence, or criminal activity).

This implies that the new policy applies to public posts and public sharing, although it is indeed written in a way that Microsoft could be spying on your private content. But I suspect the intended interpretation is “Don’t publicly (display or use the Services)” where the intent is “publicly” … “use the Services”. The “or” makes it possible to interpret the sentence as merely “use the Services” with the wrong content, suggesting private information.