I think, and I'm not 100% sure either, that all passive skills are still in effect, but the back unit cannot activate any active skills. So your -faires, -breakers, +Stats, Armsthrift, and such will still be in use, but you can't activate Astra, Sol, Lethality and such, nor will Galeforce or Lifetaker trigger after the fight.
Also something I noticed today with Galeforce.
- Sumia attacks and kills an opponent. Galeforce triggers.
- Sumia attacks and kills a second opponent. No Galeforce, as expected.
- Olivia dances to Sumia, Suma gets her turn refreshed.
- Sumia attacks and kills a third opponent. Galeforce does NOT trigger.
Shouldn't Galeforce have triggered there? I mean for balance it's probably good that it didn't, but it also means that Olivia's Dance doesn't favor Galeforce using units and it might be better to give the extra turn to someone else.