How do I Fix Microsoft Authenticator App Error: "You Cannot Set up Passwordless Phone Sign-in?"

Passwordless sign-in is not the primary function of the Microsoft Authenticator App. Tap OK on the error message, then the "back" arrow, and use either a push notification or the one-time password code. You can find instructions for configuring those options in KB article "How do I set up multifactor authentication for my account?"