It caches your credentials so you can still login offline. But you do need to be online when you're logging into your PC for the first time, post-install.

There are some unofficial hacks to bypass the online account requirement, but MS have been actively stamping these out. Now the current situation isn't like it's impossible to bypass this, mind you (as far as I'm aware there's at least a couple of workarounds), but normal users won't know/care and will end up just creating an online account.

> What if there's no internet?

Surely that is something only criminal would say.