I want to use a movie which is in the public domain, both as reference material, and probably transform it to make assets from it but I'm not sure about the legality of it.

Specifically this one https://archive.org/details/Waterloo1970_201805 being tagged as Public Domain Mark 1.0 stating that "You can copy, modify, distribute and perform the work, even for commercial purposes, all without asking permission.", BUT also "Persons may have other rights in or related to the work, such as patent or trademark rights, and others may have rights in how the work is used, such as publicity or privacy rights.".

It sounds like these two statements cancel each other "you can use it, except you don't". While the first statement is clear and permissive, it's the second statement that confuses me.

Can somewhere explain this better to me? How can I tell what part of the movie I can use or not?

It means that the work itself is free for you to use, but that it might contain things which arguably are not free to use, and therefore you may not be able to use that portion.

More specifically - and it says a bit of this above - the copyright for the video may have passed into the public domain, but that doesn't mean that any trademarks shown in the video are also public domain, nor does it mean that people who appear in the video have given their permission for you to use their imagery, etc. This is something where you just have to do your own due diligence.

Worse, I'm not even convinced that the video in question is actually in the public domain. The uploader seems to claim that it is, but I see no evidence of that, but I do see some evidence against it - notably that the film is from 1970, whereas US law means that most films after 1924 are still copyright protected. In the UK the law says it's copyrighted until "70 years after the death of the director, screenplay author and composer" which, without even checking, means it's still covered until at least 2040.

If you only use it as a reference for creating original work you are in much safer water. You still have to consider whether individual elements are good to use. Refrain from portraits, brands and things that might have a patent/copyright and you're generally fine.