Explanation:

According to the Microsoft SC-300: Identity and Access Administrator Study Guide and Microsoft Learn documentation under "Add and configure custom domains in Microsoft 365", when an organization acquires a new Microsoft 365 tenant, it starts with a default domain such as contoso.onmicrosoft.com . To use a friendly and company-branded domain like contoso.com for email and user principal names (UPNs), administrators must follow a specific sequence of steps to integrate the custom domain into Azure AD
/Microsoft 365.
Step 1 - Register a custom domain name of contoso.com First, register the custom domain in Azure Active Directory. This action adds contoso.com to your tenant and prepares Microsoft 365 to validate ownership.
Step 2 - Create a new TXT record in DNS After adding the domain, Microsoft 365 provides a TXT record to add to your DNS zone (at your registrar or DNS host). This record proves that your organization owns the domain.
Step 3 - Verify the domain name Once the TXT record is published and propagated, return to the Microsoft
365 admin center or use PowerShell to verify the domain. This step confirms domain ownership and completes the domain setup.
Step 4 - Set the domain to primary Finally, after verification, set contoso.com as the primary domain. Doing this ensures that all newly created users automatically receive user principal names (email addresses) ending in @contoso.com .
Microsoft documentation states:
"After verifying ownership of the custom domain, you can set it as the default (primary) domain for new users in Microsoft 365."