The 'set exception window for out of school policies' setting allows you to apply in-school policies to your students for specified time periods even when they are off-campus.
If you have the Take-home policy or if parents have the Parent Policy set up, then the student will be filtered as per those policies when they are off-campus. However, if you want them to get an in-school policy instead, then you should enable the Set Exception Window field in Global Settings. This is particularly useful at a time when schools are yet to open full-time offline, and students are in class online from home.
You can select the days and times when the exception window should apply by navigating to the Settings > General > Working hours. This means that for the selected days and times, the student will get in-school policy even if parent policy or take-home policy is present. For days and time slots not specified here, the parent policy or take-home policy will apply if the student is off-campus.