Yes, you are missing something - a piece of crucial information.
Photoshop is a raster image editor - and all raster images are made of pixels, and if you zoom in on the pixels, then you will see them.
Your first image shows what anti-aliasing looks like when zoomed in.
Your second image shows what it looks like when you don't use anti-aliasing.
All of this is perfectly normal, and everything is working perfectly as it should. There are no problems here at all.
To see the image as it will appear in reality, or in a browser etc, set the zoom level to 100% in Photoshop.