In my "old" OneNote 2016, I could open an attachment from within OneNote page (eg an excel sheet), make changes and save it directly back into the page it came from (by just clicking save). This functionality seems to have been lost in the UWP version - it makes you save it to somewhere else and then re-insert into the OneNote page. Am I missing something?
No, you're not missing anything. The UWP was originally supposed to be a Windows Mobile app. It is optimized for such, much like Word UWP is. I have no idea why they are pushing UWP. You can still download the desktop app if you need it though. They claim it will be available—just not supported in the future.
I would suggest going to the Uservoice and tell them how you feel.