I don’t have a direct solution to this, but I think I know what the problem is. I am guessing you were using Safari. I have just run into this problem myself. It’s a bit maddening to get this message as there is only one password field.
I believe the issue is Safari’s auto-suggestion of new passwords, which is a constant source of frustration for me with WordPress admin. I think this form may have a hidden password verification field, and Safari is stupidly interfering with the auto-generated password WordPress is creating, causing the visible and hidden fields to have different values.
I immediately switched to Chrome, tried creating a new user with the same credentials on the same site, and it worked just fine.
So ultimately this is a Safari issue. It would really be great if there were a way for WordPress to tell Safari not to enter its auto-complete suggestions in password inputs (i.e. if Safari would actually honor autocomplete="new-password"), or for users to tell Safari not to auto-generate passwords but still keep other form auto-complete turned on.