The Obi can be configured with that option you mentioned to take a 3 digit number (area code) and use that as the ares code for all 7 digit numbers. Thus entering 703 in the option would allow all 7 digit numbers to be dialed as 703-xxx-xxxx.
You local phone company knew what area codes are in your dialing area and thus in many cases, did not require you to dial an area code if two area codes covered the same physical area. Obi cannot do that and thus, if your local physical location includes (for example 703 and 804 area codes) you can choose one or the other to be 7-digit dialing. Numbers in the other area code would have to be dialed using all 10 digits.