Processes in Microsoft 365 for setting up Office apps, redeeming product keys, and activating licenses.
You can use your own domain with 365 Home, but only if that domain supports the pop or IMAP protocol
You can also create an outlook.com mail account and under your Domain Providers web setting access redirect mail to an alternate address (outlook.com)
For clarity, what's being ask for is the support to *receive* mail on your own custom domain direct to Outlook without resorting to forwarding or requiring a domain or ISP mail account that you fetch mail from using POP or IMAP. Besides that the latter option is very messy when presented in Outlook. Some don't provide a mail account anyway.
Yes the vast majority of home users don't bother with a domain, though personally I recommend they do. It provides a personal or a family domain that isn't tying your email address to an ISP or mail service like Outlook or GMail, so easy to move around without having to update your email addresses on hundreds of web sites and tell everyone you've changed address.
Many though do use their own domain and like to have the flexibility to have an address for each family member under the same domain or a personalised domain, or even use an address per site they sign up to so they can control and trace spam more easily amongst other things.
There are various issues with forwarding that make it less practical to use a domain, compared to the mail server (e.g. Outlook) just accepting mail for the configured domain. Also some domain providers either won't provide mail forwarding, or charge extra for it, plus you are relying on their own forwarding service working. Proper domain support means the mail goes direct to the mail server.