Having an MS account doesn't mean that Windows is activated with it.
If you have an MS account that you log into Windows with, and your MS account has a valid Windows subscription associated with it, then Windows, when activated, will use that license. Common ways to get this is to have an MS subscription to something that gives you Windows access, such as a Visual Studio (formerly MSDN) subscription, getting a machine from an OEM and then logging into that machine using your MS account the first time, or by having a product key associated with your account.
As shown on the screenshot you posted, you can either activate your copy of Windows using your MS account, which requires an existing license or subscription, or use a product key. Depending on how you got your Windows license originally determines which way you go. If you have a subscription to something that provides Windows, or a previous license from an OEM that you purchased the computer from, then activating with your MS account should find it and you are then activated.
If you have a product key then use the option to change the product key, enter your product key, and Windows will validate and activate it. If you have trouble with either solution then use the troubleshooting option given.
Note that Windows historically has a limit on the # of devices you can use your license with. If you exceed that limit then Windows will not let you activate again. To see how many devices are using your license, and optionally remove them, then go to your MS account online. There is a Devices section that lists all the devices using your MS account license. Remove any devices you no longer use to free up the licenses.
MS 365 Family has nothing to do with Windows or activation. Having a subscription to it doesn't give you a license for Windows.
MS 365 Family, as discussed here, is really an Office subscription. Office and Windows are separate products, licensed separately and must be purchased separately. Having an MS365 Family subscription means you can use Office, not Windows.