Understanding and engaging with privacy policies is crucial for online privacy, yet these documents remain notoriously complex and difficult to navigate. We present PRISMe, an interactive browser extension that combines LLM-based policy assessment with a dashboard and customizable chat interface, enabling users to skim quick overviews or explore policy details in depth while browsing. We conduct a user study (N=22) with participants of diverse privacy knowledge to investigate how users interpret the tool’s explanations and how it shapes their engagement with privacy policies, identifying distinct interaction patterns. Participants valued the clear overviews and conversational depth, but flagged some issues, particularly adversarial robustness and hallucination risks. Thus, we investigate how a retrieval-augmented generation (RAG) approach can alleviate issues by re-running the chat queries from the study. Our findings surface design challenges as well as technical trade-offs, contributing actionable insights for developing future user-centered, trustworthy privacy policy analysis tools.