As documented here, the Azure AD Connect service account will need the following permissions for Password Hash Synchronization (PHS):
- Replicate Directory Changes
- Replicate Directory Changes All
By default, 'normal' users in Active Directory do not have this permission. The permissions should be added manually, or you can specify an account with membership to the Enterprise Admins group in the Active Directory forest to set the delegated permissions for you.
You receive the error 'Users in your organisation will not be able to log in', because with the current permissions on the service account, Azure AD Connect will not be able to synchronize the (hashes of the) hashes of the passwords for the users in scope. As you've specified this as the sign-in method to Azure AD, the users in scope will not be able to sign in to Azure AD and Azure AD-integrated services, like Microsoft 365 and Azure.