The password policy affects the actions that you take when setting a password through JIRA, meaning resetting a user's password or that user changing the password themselves. In many companies, this won't even matter because you will not allow JIRA to write to the LDAP directory. In these read-only configurations, you should enable the "External user management" setting which helps JIRA know that things like the Password Policy don't make sense and should not even be shown.
However, if the directory is writable and users can change their passwords through JIRA, then the Password Policy will take effect. The problem is that Active Directory has password policy settings of its own, and if you don't set exactly the same rules, then the result can be very confusing, because the error messages from Active Directory probably won't tell you as much about what is going on.
The best way to think about this is that the Password Policy settings control what passwords JIRA itself is willing to allow, but just because JIRA allows a password does not mean that your LDAP server will.
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