Safari will not let me delete saved passwords

That looks like the front-end processor window for some non-Roman scripts. This gets pretty far into the weeds if you don't normally use them, but in case you're curious:

With a writing system like Japanese, you type using English characters to produce phonetic Japanese characters, and then convert those into ideograms. For the most part, this happens "inline", that is, right where the cursor is, wherever you'd be typing if you were typing in English. Back in the old days, however, it happened in a separate window (the FEP window), and once you had a chunk of text composed in that, you'd send it to the main window.

I use Japanese on my system. The FEP window still exists, and every once in a while it will pop up for a second—then the system seems to get its composure back and I go back to inline typing. I'm guessing that you're trying to produce a character that involves multiple keystrokes, like ü, and somehow that's invoking the FEP window. I can't say why it's happening or how to stop it, but in my experience it is harmless.

Found the solution. I searched for keychain in spotlight and found something called Keychain Access. All the passwords were here under Login. When I deleted them from here, it removed them from Safari as well.

Safari's preference to Remove All just removes the locally stored passwords in Safari and not the ones that are in the user keychain.

Additionally, go to System Preferences and make sure that keychain syncing is disabled if you don't want any data stored in iCloud. You can empty that keychain if desired using Keychain Access before disabling the sync for extra security if you are sure no other devices depend on keychain syncing.