I don't like the way it is handled. Imagine Excel actively prompting you with a pop up every time you open a sheet: "Do you trust the authors of this file? If not you will loose out on cool features and the sheet runs in restricted mode"

No it doesn't because restricted mode without Macros is the default and not framed like something bad or loosing out on all of those nice features,

It's worded really badly, so vscode is the thing that provides the dangerous features? No problem, I know and trust vscode. What the message should be warning about is that the folder may contain dangerous code or configuration values that can execute upon opening due to vscode features that are enabled by default. That sounds worse for them but that would be honest.

The message, at least for me, does not convey that merely opening may lead to code execution.