The main thing that is happening is that Outlook is enabling OAuth for Gmail and this updates how the sign-in works for Google accounts in Outlook.
As part of this, Google will ask for your consent to allow Outlook to perform actions on your behalf. Prior to this upgrade, Outlook was able to use your credentials directly to perform operations like deleting email when you click the delete button. The new sign-in model is more modern, and includes a consent screen that outlines access that Outlook already had prior to this upgrade. Nothing has otherwise changed in Outlook or in the access it needs to your Gmail account for you to use Outlook with Gmail.
While I certainly understand how the privacy-minded language in the consent screen can give cause for concern, not much has really changed under the covers, and this access is required to enable Outlook’s basic functionality with Gmail