Images below the visible area (the ones lower than container bottom) are not loaded. When scrolling down they are loaded when needed. Empty cache and shift-reload to test again. Compare this to page where plugin is disabled or same page with fadein effect.
$("img.lazy").lazyload({         
    effect : "fadeIn",
    container: $("#container")
});
      
      
#container {
    height: 600px;
    overflow: scroll;
}
      
      <img class="lazy" data-original="img/example.jpg" width="765" height="574">





