Office 365 account setup guidance was improved in v1.20.0 with updated documentation and prompts. The key things for O365 accounts:
Use OAuth (recommended): In account setup, select “Office 365 / Outlook” and complete the OAuth flow — this is the most reliable method
Enable IMAP: Make sure that you’ve enabled IMAP and SMTP in your Outlook settings. If you don’t see the SMTP option, Outlook may be entirely blocking you from using third-party email clients to send mail.
Note: Microsoft has deprecated basic authentication for Exchange, so OAuth is the preferred path going forward.