If I understand it correctly, the passwords are stored encrypted, but not the additional data, like website-URLs and app-names. This way the password manager only needs to temporarily decrypt a specific password when it’s needed for auto-fill. In regards to the passwords that’s probably a bit safer than keeping all the data and the passwords unencrypted in memory. But the cost is that all the other data is stored unencrypted.
Security is only one part of it. If you host a password manager yourself then things like availability, backups, disaster recovery and monitoring also become your responsibility. I’m hosting my own vaultwarden but there is only a very limited amount of people I would suggest self hosting a password manager to, because I know they have the knowledge to do it and understand the risks.