Hi,
The Privacy Policy Url setting in the Site Settings only creates the URL for the link that the <portal:PrivacyPageLink ID="pp1" runat="server" />
control displays, but it does not create a CMS page for you.
You will need to create a page like normal and call it something like "Privacy" or "Privacy Policy" and uncheck the "Include in Menu" option, and then set your Privacy Policy Url setting in the Site Settings to the URL your new page created.
I hope this helps.
Elijah