Windows Active Directory - Implement a password policy. What will happen to current passwords?

By default, users will be able to log on fine, and won't be forced to change their passwords straight away. When their password is next due for renewal then they will need to supply a password of the correct complexity at that time.

You can of course set the 'change password at next logon' flag on all accounts now if you want people to change their passwords as soon as possible. Depending on your situation this might be useful though obviously rather disruptive too; if you tell people about the new rules now but some of them don't have to change their passwords for another 60 days then they'll probably have forgotten about the new complexity rules by then.

If you want everyone to have a complex password then make sure that all passwords are set to expire so that they have to change them.

As far as I am aware windows will only check the complexity of the password when it is changed. So your current passwords will still be useable and the policy will only come into effect when users change their password.