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And I'm able to edit PowerPoint files when the WiFi is turned off. So I guess the software is on my machine?

There's actually two issues here.

First, is the Office software installed on your computer even though you are using a cloud-based subscription? The answer is yes and can be found here:
https://answers.microsoft.com/en-us/msoffice/forum/msoffice_...

Second, where are your data files? That is, that Powerpoint file you are editing, where is it stored?
Your Office subscription comes with cloud-based file storage. If the data file you need is in the cloud, and your Interconnection is inactive, you can use the Office App, but not on any files that are solely in the cloud. Any data file stored on your computer is of course available for you to work on without an Internet connection.

I don't use the Office subscription, but it wouldn't surprise me if Microsoft stores data files in the cloud and keeps a copy local on your PC. Possibly in the same vein as Dropbox works. Just speculation on my part.
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