With a clean install of macOS High Sierra, the default file format is APFS (Apple File System) for SSDs and to make it Unix like generally the choice is the one with case-sensitive, encrypted or otherwise. Since OneDrive expects a partition with case-insensitive format, we cannot setup local sync in that APFS system. And even if we create a case-insensitive APFS volume, OneDrive fails to setup sync. The quick and easy way is to create a new partition which is not an APFS volume, and choose exFAT format. Use this as the directory for OneDrive sync.