This policy setting controls the order of sources for photos displayed in Outlook.
If you enable this policy setting, Outlook will first look at the OAB/AD for the user photo. If this is not available, Outlook will show a Contact photo if the Contact photo is available.
If you disable or do not configure this policy setting, Outlook will first look into the Contact Address Books for the user photo. If this is not available, Outlook will look to the OAB/AD if available.