vSphere 8.x
For the best practices see KB 322179 "Configuring Microsoft Entra ID for vCenter Server", and KB 422002 "After configuring Entra ID as a valid identity source, login via "Sign in with local account" allows login bypassing Entra ID."
As to the setting up and use of local accounts, this would be done from within Entra, before then being mapped to privileges in vCenter.
See the above KBs, as well as VMware vSphere SDKS and Tools 8.0 VMware Identity broker and vSphere Permissions and User Management Tasks for more info.
Note: It would be up to the 3rd party application to support something other than password.