This security setting determines whether local accounts that are not password protected can be used to log on from locations other than the physical computer console. If enabled, local accounts that are not password protected will only be able to log on at the computer's keyboard.

Warning:

Computers that are not in physically secure locations should always enforce strong password policies for all local user accounts. Otherwise, anyone with physical access to the computer can log on by using a user account that does not have a password. This is especially important for portable computers.
If you apply this security policy to the Everyone group, no one will be able to log on through Remote Desktop Services.

Notes

This setting does not affect logons that use domain accounts.
It is possible for applications that use remote interactive logons to bypass this setting.

Note: Remote Desktop Services was called Terminal Services in previous versions of Windows Server.