To use office365 on a terminal server we use the office deployment tool to install it. Once it is installed then a user logs in it will prompt them for their user name and password. The users that will be using office will need to have a  license  for Office 365 pro-plus with like an E3 subscription. That allows office to be used on a shared computer like a RDS server. Everyone that will be using office on that server will need to have that type of license