An Azure service that is used to manage and protect cryptographic keys and other secrets used by cloud apps and services.
Yep - you can assign roles to it directly. Whether you should use it or individual managed identities depends entirely on how your apps interact with the Key Vault.
The distinction is between App Service platform access and application-code access. For App Service platform features, such as importing or synchronizing an SSL/TLS certificate from Key Vault into an App Service, the identity is the Microsoft Azure App Service enterprise application/service principal, rather than the managed identity of each individual Web App. In this scenario, you can create an RBAC assignment on the Key Vault under Access control (IAM) and assign Microsoft Azure App Service the appropriate role, such as Key Vault Secrets User when the platform needs to retrieve the certificate's private-key material, or Key Vault Certificate User when certificate access is sufficient. You do not need to create a separate managed-identity assignment for every Web App solely for this platform functionality.
For application-code access, however, the Microsoft Azure App Service identity is not the identity used by your application to authenticate to Key Vault. If C#, Node.js, or other application code running in the Web App uses the Azure SDK, SecretClient, DefaultAzureCredential, or similar functionality to retrieve secrets at runtime, the Web App should have a system-assigned or user-assigned managed identity. That specific managed identity should then be assigned the appropriate RBAC role on the Key Vault, such as Key Vault Secrets User for reading secret values. This provides access at the individual Web App level and follows least-privilege principles.
So you should not simply replace every Microsoft Azure App Service access policy with the managed identity of each Web App. If the existing access policy was there for an App Service platform feature, such as certificate integration, retain the equivalent Microsoft Azure App Service service-principal access through RBAC. If the access was for application code accessing Key Vault, replace it with an RBAC assignment to the Web App's managed identity.
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hth
Marcin