Explanation
References:
Azure AD password protection is a feature that enhances password policies in an organization. On-premises deployment of password protection uses both the global and custom banned-password lists that are stored in Azure AD. It does the same checks on-premises as Azure AD does for cloud-based changes. These checks are performed during password changes and password reset scenarios.
You need to install the Azure AD Password Protection Proxy on a domain controller and install the Azure AD Password Protection DC Agent on all domain controllers. When the proxy and agent are installed and configured, Azure AD password protection will work.
In the exhibit, the password protection is configured in Audit mode. This is used for testing. To enforce the configured policy, you need to set the password protection setting to Enforced.
Reference:
https://docs.microsoft.com/en-us/azure/active-directory/authentication/howto-password-ban-bad-on-premises-de
https://docs.microsoft.com/en-us/azure/active-directory/authentication/concept-password-ban-bad-on-premises