Here's some explanation from sexininthecensus.org's FAQs:
What does the letter say?
The letter asserts your right, as enshrined in data protection regulations, to object to the way in which the data producer (in this case, ONS) records, stores and uses your data, specifically the answer you provide under the sex question. It is an explicit request to ONS to confirm that they will only record your sex as your sex registered at birth.
How is this going to make a difference?
This is about registering an objection to ONS abandoning the principle of collecting data on biological sex. The more of us that register our objection to this, the louder the message we send.
Does the letter cover everyone in the household?
No. Each individual person in the household can include their own letter. You do not have to return your individual census form in the same envelope as the household one.
I think the second point perhaps undersells the letter, as it looks like it could do more than just register an objection: it appears to confer a legal obligation on the ONS to respond under GDPR.
A more detailed explanation of how ONS could deal with these letters would be good to have.
Note that the letter also includes and explains an objection to the gender identity question, and is not compatible with any answers to that question.