VPN can still work with this setting being disabled but right now will fail to work. Users will meet with forever “Connecting…” error and might think of many other reasons such as censorship/firewall/AV/others being an issue. This also will trigger Proton’s alternate ways to get connected to its service but that too won’t be working because of this one setting.
In short, VPN can work without having to rely on this one specific check performed.
See GPO location here: Admin templates > System > Internet Communication Management