Outlook requires OAuth authentication; app passwords no longer work for third-party mail clients, including Thunderbird. You will need to change the authentication type to "OAuth2" and then sign in to Microsoft when prompted. This support article should help as well.

Thank you for your reply. I’m unable to register my Outlook email account itself, so I cannot change the authentication method. I tried entering my regular password instead of an app password, but it didn’t work.

Did you click on the "Edit Configuration" button when registering the Outlook email account? You should be able to specify OAuth authentication in there. See the attached images if needed.

When registering Outlook, before I reach the "Edit Configuration" step, it says "Authentication failed" and I am unable to set it up. The order of the attached images causes an error.

Check settings>general to see if your setup has checked the experimental setup option. See attached screenshot. If it is ticked, UNtick it and restart the setup process.

I successfully registered it. Thank you very much!

You are very welcome. :)