Hybrid mode in Xeams allow companies to have user's email repository in two locations:
There may be times when you want emails for certain users to stay in Xeams and not get delivered to the downstream server. This is precisely what Strict Local means.
Consider the following scenario:
Since Mary is a temporary employee, it makes sense to have her connect to Xeams instead of Exchange to send/receive here emails. You will have to configure MS Outlook on her machine to either use POP3/IMAP along with SMTP connecting to Xeams.
Since Mary does not have an account on your Exchange, check the box for Strict Local. Click Server Configuration/Manage Users and Edit a desired user. See image below.