Active Directory
A set of directory-based technologies included in Windows Server.
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Is there any functionality that is lost by having a group originate in on-prem Active Directory and synced to Azure Active Directory VS being an Azure AD cloud-only group?
No real loss of functionality, just keep in mind that any process that may depend on an on-prem group will not work.
However there are group write back options in AADConnect
https://learn.microsoft.com/en-us/azure/active-directory/hybrid/connect/how-to-connect-group-writeback-v2