Tornado is absolutely money laundering. You’re moving the coins from a dirty wallet that is being watched by the government to a clean one that has plausible deniability. It’s not the end of the process though, you still need to sell something to the wallet to make it look like you earned the coins legitimately. That’s where NFTs come in.

If you just go dirty wallet -> clean wallet -> exchange it’s trivial to see that the exchange coins came from the dirty wallet. If you mix the coins from the dirty wallet to the clean one there’s no way for the exchange to say the coins came from the dirty wallet, all they know is the coins came from the mixer.