Can PS5 use HDCP DRM in games?

From the PS5's perspective, it seems the only applications that would be disabled are what you said. Applications such as Hulu and Netflix for example won't work with this setting disabled for obvious reasons. This is probably a poor choice of words to display as the warning message.

The PS5 is much more than a gaming machine; it gives you access to a wide range of media apps, such as Netflix, Hulu, Amazon Prime, and Disney Plus. There is an obvious problem if you were able to record video on the PS5 while accessing any of these apps. So that’s the reason HDCP exists on your PS5.

As far as games making use of HDCP, I would think it is not possible, or at the very least, an unnecessary extra step for video game makers to do. The game itself (or rather its manufacturer) would need to obtain a license to use the patent, which doesn't really make sense, since it is not a device (it is the content itself).

In order to make a device that plays HDCP-enabled content, the manufacturer must obtain a license for the patent from Intel subsidiary Digital Content Protection LLC, pay an annual fee, and submit to various conditions

HDCP is meant to be licensed at the device level (in this case, Sony licenses HDCP for use in the Playstation 5s they manufacture).