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How does it work? Is it P2P or what?

The encrypted file is stored in the cloud. The recipient downloads it from there and decrypts it.

P2P would be much better, but this isn't that.

Wasn't it initially P2P and based on the WebRTC protocol?

Not as far as I can tell. Mozilla also has (or had, I forget whether it's still a thing or not) a built-in WebRTC client they called "Hello", but that was a different thing.

What's the reason it's not made this way or doesn't include WebRTC-based P2P transfer as an option?

I have no idea.

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