To create an unlicensed “application user” in your Dynamics 365 organization, follow these steps. This application user will be given access to your organization’s data on behalf of the end user who is using your application.
1) Navigate to https://admin.microsoft.com and sign in, or from your D365 organization web page select the application launcher in the top left corner.
2) Choose Admin > Admin centers > Azure Active Directory
3) In the left navigation panel, choose Users and Select + New user
4) In the User form, enter a name and username for the new user and select Create. Make sure the username contains the organization domain URL of your D365 tenant (i.e., email@example.com). You can exit Azure AD now.
Navigate to your D365 organization
5) Navigate to your D365 organization
Navigate to Settings > Security > Users
Choose Application Users in the view filter
Select + New
In the New User form (Application User Form), enter the required information. These values must be identical to those values for the new user you created in the Azure tenant.
User Name – The Username that was created on Azure Active Directory
Application ID – You can get this from the App (Overview section) that is created under App Registrations
Full Name and Primary Email – As your wish.
6) If all goes well, after selecting SAVE, the Application ID URI and Azure AD Object Id fields will auto-populate with their correct values.
7) Before exiting the user form, choose MANAGE ROLES and assign a security role to this application user so that the application user can access the desired organization data. I gave Administrator as a role but you can give the role as per your requirement.
Hope this helps.