Additional Microsoft Entra services and features related to identity, access, and network security
Yes, this can override group policy and make it so that your accounts do not have passwords required. This can cause a security gap, but you can easily fix it by querying for the accounts that have "Password-Not-Required" = true and switching the setting to false.
First, you can get the list of all user accounts that do not require a password:
Get-ADUser -Filter {PasswordNotRequired -eq $true}
Then you can correct the accounts using:
Get-ADUser -Identity User2 | Set-ADUser -PasswordNotRequired $false
https://learn.microsoft.com/en-us/powershell/module/addsadministration/set-aduser?view=win10-ps