Please Note
App passwords are no longer recommended and may be disabled for your business. Most apps have now been updated to allow for modern authentication methods that include multifactor authentication rendering app passwords redundant.
When multi-factor authentication is enabled on your account, sign in requires a device (usually your phone) to verify your sign in. With apps like Outlook or the mail client on your phone, using a verification code is not possible - you want them to work on your account checking for emails etc. without needing you to verify them all the time.
We get around this problem using an app password. An app password is a special password generated by Office 365 and used for a specific app. You shouldn't store or write down this password, just generate one for each app you want to use type it in once and forget about it, the system takes care of the rest.