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Microsoft 365 Certified: Endpoint Administrator Associate · Microsoft
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I am assuming the 2nd option in C is a typo and is supposed to be sub1. .onmicrosoft domains are auto-verified and available for user creation unless blocked by tenant.
D. all the domains in the subscription tested
Custom domains (e.g., contoso.com) show Incomplete setup when they’re not verified / missing DNS records. Until they’re verified, you can’t use them as a user UPN/email suffix. onmicrosoft.com domains (the original one and any extra ones you add, like Sub1.contoso221018.onmicrosoft.com and Sub2.contoso221018.onmicrosoft.com) are automatically verified by Microsoft — there’s no DNS to configure. They can be picked in the Domain dropdown when you create a user even if the Domains page labels them Possible service issues or Incomplete setup (that label just reflects optional service setup steps, not their availability for UPN/email).