Users' Exchange mailboxes can be hosted online or on-premises. Integration with on-premises Exchange requires an Exchange hybrid deployment.
Users with mailboxes hosted on-premises must be synchronized to Azure Active Directory. They can make use of all the features in the above scenario, but additionally they can also change the user profile picture (if the Outlook on the web mailbox policy allows them to do so), and manage meetings, providing Exchange Server 2016 (Cumulative Update 3), or later, is running on-premises with OAuth configured