End-to-end encryption means that the data is encrypted from the moment it leaves your device, and can only be decrypted using your encryption key once it's back on one of your devices.
We can't read your data. Neither can any potential eavesdroppers, such as your internet service provider.
In the rare case of a complete server breach, your data remains encrypted—no one can decrypt your files without knowing your password.
However as per their blog article, symmetric encryption AES-256-GCM is used, with a key hash derived from the user's password / salt using scrypt, and two recent alternative server implementations   show that the derived key hash is transmitted to the Obsidian's servers by the app during vault creation (among a few other calls), and stored in their database.
So if a symmetric encryption algorithm is used, and both the end-user user and Obsidian's server know the symmetric key, how come they wouldn't be able to decrypt the data?