Managing sound and video settings during Teams meetings and calls for optimal communication
Hi Megan Davis
You can refer to AI's answer first, as it correctly explains the difference between Mute and Hold in Microsoft Teams. To directly answer your question: if you mute your microphone during a Teams call, the caller should not be able to hear conversations taking place around you, and speech captured locally by your muted microphone should not be included in the call transcription.
The transcription may continue to update while you are muted because it can still capture speech from other active participants in the call. Seeing the transcript continue to grow does not mean audio from your muted microphone is being transmitted or transcribed.
If confidentiality is important, make sure the Teams microphone icon shows as muted and verify that there are no other connected devices (for example, a phone, Teams Room device, or another computer) joined to the same call with an active microphone.
Therefore, under normal operation in Microsoft Teams, muting your microphone prevents your local conversation from being heard by the caller or captured in the Teams transcript.
I hope this information helps.