The system handles notifications for inlined projects as if the steps from the inlined project were embedded in the calling project:
When a project contains an inlined project, the inlined project's project-level notification settings are ignored. When Project A inlines Project B, no messages about the start, passing, or failure of Project B are sent.
Step-level notification settings are unaffected. If a step has a Pass or Fail Notify access group set, the appropriate messages get sent, whether the step is in a top-level project or an inlined project.
The inlined steps contribute to determining whether the calling project succeeds or fails. A failure in an inlined step, for example, either causes the calling project to fail or, if the step is set to Continue On Failure, changes the calling project's state to Passed with Warnings.