I can confirm that what you think will happen, happens.

Setting "Enforce password policy" will cause SQL to "inherit" password complexity settings from the OS (whether set there through local policy or through Domain Group Policy.) Not checking "Enforce password expiration" will keep those account passwords from expiring.

As for what happens to existing accounts with passwords that do not meet the complexity requirements, as others said, nothing will happen until you change the password, at which time the complexity requirements will be enforced.