Box 1: Tenant Root Group, ManagementGroup1, Subscription1, RG1, and VM1
Once your business rules have been formed, the policy definition or initiative is assigned to any scope of resources that Azure supports, such as management groups, subscriptions, resource groups, or individual resources.
Note: Azure provides four levels of scope: management groups, subscriptions, resource groups, and resources. The following image shows an example of these layers.
Box 2: ManagementGroup1, Subscription1, RG1, and VM1
You can exclude a subscope from the assignment.
Reference:
https://docs.microsoft.com/en-us/azure/azure-resource-manager/management/overview
