The Magic Band is literally just a fancier room key. If you ever traveled to WDW (or any other resort that let you use your room key to do things like pay) you have used a similar system. As a PP said, it just points back to your account in My Disney Experience. Which then in turn also references things like your hotel reservation, park tickets, etc. So when a guest scans their band at a tap point, be it a hotel room door lock, turnstile to enter the park, pay system at restaurant; the tap point reads the band ID, and matches that ID to the band database. If the band database has a corresponding link to a resort ticket, it lets you in the gate. If it has a link to a room reservation that had setup charging (really no different than any store that lets a customer buy on store credit) it will let them charge. The band system doesn't know what ticket they have, it just gets told they have a valid ticket. It doesn't know their credit card, it just knows that they have a line of credit at the hotel and to charge the Mickey bar to WDW-Account-117A89EW (or whatever the system uses to tie back to the room).
Now the band does diverge from that simplier room key by having long range NFC capabilities. Those do let WDW have a pretty good idea on your location within the park. Is that a worry to me? To a point yes, but only to a point. I'd suspect that WDW could do a decent job of reconstructing 30-50% of that data using existing systems through big data. Matching ticket to credit card used to purchase it, tickets used around the same time, tickets used to get the old paper FP, credit card used at a certain restaurant, etc. Since most people only have a few CC's they use, it's pretty easy to build up a history of where they were when. And then knowing how long it takes to get from A to B, and what approx wait times were that day they could guess what rides you did. Stuff like that. My understanding is that the NFC isn't nearly as precise as GPS, especially over distance unless they can grab you from multiple readers at once. And even then, WDW knowing that I spent 30 mins in line at Cosmic Rays isn't nearly as bothersome to me as if the government knew I spent 30 mins at the public library reading books on democracy. They already know I'm in the park since my ticket was scanned, so it's only a bit more granular than that.
