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In SharePoint Online, application permissions like Sites.Read.All and Sites.FullControl.All grant access across the entire tenant by default. In contrast, Sites.Selected lets you restrict access to specific site collections.
If you want to grant Sites.FullControl.All or AllSites.FullControl to an Enterprise Application or Service Principal to a single site, you must configure the Sites.Selected permission model in Microsoft Entra ID.
I found an article which may be useful, please take it as a reference Develop Applications that use Sites.Selected permissions for SPO sites. | Microsoft Community Hub
I hope this helps.
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