what account are they referring when they say update account in settings

It means that you should check the settings in your email account. Your password may be missing or some other information could be incorrect.

Settings>Passwords & Accounts>Your Hotmail account. Look in the settings to see if something is amiss. Sometimes it is easier to delete the account and add it back again. Deleting the account will not delete your emails from the server.

OK, that helps clarify, thanks.

Yes, you should go to Settings > Passwords & Accounts > Hotmail as something is incorrect there. Perhaps an email password is missing. Or perhaps you should remove and re-enter all the information.

Add an email account to your iPhone, iPad, or iPod touch - Apple Support

You have given us no context at all. (Example: ‘they say” ... who is “they”? We have no idea.)

So the answer may be Settings > Passwords & Accounts ... or maybe not ...