Macbook Air M1 - Account Locked

Having satisfied yourself that your Apple Account credentials are correct, then return to that locked-out Mac and start over with If you forgot your Mac login password - Apple Support.

There are many steps, most of which begin with "if you see..." so some of them will not be applicable. Proceed by following each of those steps, and in the specified order, which eventually lead to If you can't reset your Mac login password - Apple Support. They lead to even more "if" steps like "if you still can't reset your password" etc, which lead to erasing the Mac.

That will work, but just prior to erasing it you might want to contact Apple Support to make sure there is nothing else you can do.

I understand, and I am at a loss to explain the reason for that "unable to unlock this volume" for the same reason as you: it doesn't explain why, probably because it can't.

That's the reason for contacting Apple Support. They are likely to have some suggestions that I haven't thought of. The worst that could happen is they tell you to erase the Mac, something you already know, but if you're persistent or fortunate enough perhaps someone there can explain the reason or at least speculate why your Apple Account can't be used to unlock the Mac. Without an explanation I would be just as frustrated.

I am using my Apple ID that is linked to my profile to reset.

I would think that should have worked. Try logging in to your Apple Account, here: Manage your Apple Account. If it does not recognize your Apple Account password there, then proceed as described in If you forgot your Apple Account password - Apple Support.