I have a business OneDrive account, and I've enabled OneDrive on my 3 Macs (running Mojave). I have a bunch of Office documents in the OneDrive folder. I have checked the "Use office apps to sync office files I open" setting in the OneDrive prefs.
However, whenever I double-click an Office document from the Finder, it shows as "Saved on my Mac" in the title bar of the corresponding Office app, and autosave is not enabled. If I click the autosave toggle button, the app asks to move the Document on OneDrive, even though it's already there!
For the Office app to properly see that the document is in the Cloud, I have to open it from the app open menu and go to the OneDrive browser, which is tedious and much less convenient than the system file browser.
It's as if the "Use office apps to sync office files I open" setting had no effect (and in fact, when I turn that setting on and off, nothing changes).
The issue also affects my personal OneDrive folder.
I thought it was a known limitation of OneDrive on the Mac, but apparently, some Mac users don't have this issue.