DRAG DROP
You have a file server named Server1 that runs Windows Server 2012 R2. The folders on
Server1 are configured as shown in the following table.
A new corporate policy states that backups must use Windows Azure Online Backup
whenever possible.
You need to identify which technology you must use to back up Server1. The solution must
use Windows Azure Online Backup whenever possible.
What should you identify?
To answer, drag the appropriate backup type to the correct location or locations. Each
backup type may be used once, more than once, or not at all. You may need to drag the split
bar between panes or scroll to view content.
Answer: 
Explanation:
http://msdn.microsoft.com/en-us/library/azure/jj573031.aspx
This is correct, you can backup to azure whether the folder is encrypted or compressed (not when they are encrypted and compressed) or neither.
You cannot backup system state using Azure.
But folder1 is neither?
Neither is cool. But if both = yes, then it is not
Q25. Can I use Azure Backup Server to create a Bare Metal Recovery (BMR) backup for a physical server?
A25. Yes.
https://azure.microsoft.com/en-us/documentation/articles/backup-azure-backup-faq/
this will have changed in the exam as I now know you can use Azure to backup the system state.
As this is an older question the given answer will be correct.