What does ELO actually tell us?

I was thinking of a scenario: two players, both start at lets say 1200 elo. They play lots and lots of games only with each other and player A only loses and player B only wins. Eventually player A will have a very low elo and the player b will have a GM elo.
So I'm kind of confused that even though player B might have an elo of Magnus Carlsen, it doesn't actually mean that the player actually is as good as Magnus Carlsen. Or did I misunderstood something?

At a certain point, the difference in ratings will be enough that the higher rated player will not get rating increases.

You could never get to 2800 starting at 1200 and only playing one other person starting at 1200... even getting 2000 is not likely

Winning someone hundreds of points lower rated will probably not net you any points.
On this site already 100 points difference in ELO will determine the rating gains as win 6/2/10 while playing someone with approximately equal ELO will be the standard 8/0/8.

If we assume linearity it would mean that winning someone who's elo is 400 points lower should already not net you any ELO.

But that player would have to win lots and lots and lots of games in a row.

You can't do that without being very good.

Any Elo rating is only meaningful within *that* pool... i.e. your pool of 2 players. You can't compare Elo ratings between different pools... so you can't compare your Player B to Magnus Carlsen.