What does "defer features updates" do in Windows Server 2016?

The following information is in the documentation of Windows 10, but I think it is save to assume that the Windows 10 Servicing Model also applies to Windows Server 2016.

Long-term Servicing Branch

Specialized systems—such as PCs that control medical equipment, point-of-sale systems, and ATMs—often require a longer servicing option because of their purpose. These devices typically perform a single important task and don’t need feature updates as frequently as other machines in the organization. It’s more important that these devices be kept as stable and secure as possible than up to date with user interface changes. The LTSB servicing model prevents Windows 10 Enterprise LTSB devices from receiving the usual feature updates and provides only quality updates to ensure that device security stays up to date. With this in mind, quality updates are still immediately available to Windows 10 Enterprise LTSB clients, but customers can choose to defer them by using one of the servicing tools mentioned in the section Servicing tools.

Source: https://technet.microsoft.com/en-us/itpro/windows/manage/waas-overview

The important information here is that "the LTSB servicing model […] provides only quality updates […] but customers can choose to defer them"

Quick hint on what quality updates are:

Quality Updates

[…] include security, critical, and driver updates. Windows Update for Business also treats non-Windows updates (such as those for Microsoft Office or Visual Studio) as Quality Updates. These non-Windows Updates are known as Microsoft Updates and devices can be optionally configured to receive such updates along with their Windows Updates.

https://technet.microsoft.com/en-us/itpro/windows/manage/waas-manage-updates-wufb

To directly answer your question in light of how I interpret the before-mentioned: The LTSB still provides you with Quality Updates. Defer updates gives you the opportunity to have Microsoft Updates (which are a part of the Quality Updates) installed at a later time and not immediately after they are available from Windows Update. Note that security updates are not affected by that setting as per this explanation by Microsoft.

I don't have sources for Server 2016, but I assume that the technical foundation should be the same as in Windows 10.