I figured out the reason. It is because of the structure you store your images in the Azure Container Registry. In Azure Container Registry, it allows you to store the image in the repository with a "/". Eg.
"folder/app-image". However, storing it like this will not let you configure the settings in the Deployment Center the way you want because the images don't allow you to have "/". I tried doing a backslash hoping it would escape e.g. "/" but that did not work. There seems to be a limitation in that regard.
Now if you still want to make it work with a "/" try doing it in the Azure CLI or Azure Cloud Shell. I haven't tested it and will not since I want to configure it through the Azure portal. What I did was just remove the folder structure and everything worked.