Outlook for Mac may give this error to users who are using an outdated software version.

1. Go to Help in the top menu within Outlook.
2. Click on "Check for Updates".
3. Select "Manual" and click "Next".
4. Select all the updates available, and then click on "Download".
5. If prompted to close applications, Click "Force Quit".
6. Once the update is complete, reopen Outlook and try setting up the account again.

Outlook also may give this error if there is a corrupted keychain entry:

1. Quit Outlook.
2. Go to Keychain Access.
3. In the top right search bar, type your Outlook account email address.
4. Once you locate the Keychain file for Outlook, drag it to the trash bin.
5. Open Outlook again and try to setup your account.