No clue. But the most painful point is not so much loosing web-based apps (we still have local versions) but Teams, OneDrive and some management tools which are moot if services are down

> How does Office 365 work?

I think that depends on which part of "Office 365" you mean: The name itself is, as I understand it, a moniker for pretty much all Office products nowadays, both the "MS Office in the browser" and the "traditional MS Office applications". More of an all-encompassing marketing label than any specific product. So the free-standing MS Word / Excel / Outlook etc I use at work are "Office 365" just as the webpage equivalents I could use in stead (but don't, because they're still pretty massively inferior to the standalone apps).

N.B: "As I understand it"; I could be wrong as Hell.