The Peekaboo plugin enhances privacy in Obsidian by allowing users to selectively hide and reveal files and folders within their vault. It provides password-protected configuration for hidden items and supports granular control, including the ability to hide specific files, entire folders, or use wildcards for pattern-based hiding. Users can easily manage visibility using the command palette or a ribbon icon for quick access. Exception files can be configured to remain visible within hidden directories, offering flexibility.