Where do I create and organize departments?
Users, departments and managers are populated from the user profiles of SharePoint. If only a few users show up or none at all, it is most likely because those people do not have a department set on their user profile.
If users are synced from an on-premise AD this information should be synced automatically. If not, you will have to go the SharePoint Admin Center and User Profiles and fill in this information manually.
After this information is present, it may take up to a day (but most likely much less) for the users to appear in the Leave Calendar as the calendar retrieves the information from the search index which would be empty until the next search crawl.
Likewise, in order for manager approval emails to work, the user must have a manager set on their profile.