General question regarding OFFSET function

The first argument to the OFFSET function is supposed to be a reference, which is typically a cell reference, e.g. A1. The INDEX function returns a value found within a range, not a reference to the value. Then why is it that the OFFSET function works just fine when the first parameter it is passed, which is supposed to be a reference, is actually the result of calling the INDEX function (which is not a reference)? Please see the attached file which highlights the value of the INDEX function that is returned when called by itself, and the result of a formula that uses the OFFSET function that is passed the INDEX result.

Thank you.