Veeam Backup for Microsoft 365 use backup proxy servers to leverage network when backup or restore data. The Veeam Backup for Microsoft 365 manager server is the default local backup proxy server.
If you try to add organization at Veeam Backup for Microsoft 365, it happens Connect to PowerShell: Connecting to remote server outlook.office365.com failed with the following error message: Access is denied error, that’s because Microsoft begin disabling Basic authentication for Outlook, EWS, RPS, POP, IMAP, and EAS protocols in Exchange Online.
Veeam Backup for Microsoft 365 Modern Authentication and Legacy Protocols Authentication requires that you grant permissions to Azure AD applications to back up and restore data from/to your Microsoft 365 organizations.