I've heard about this, and there seem to be a couple of possibilities. It's hard for me to test, since Photos shows up in my own Screensaver dialog.
#1. In Photos, select a picture and go to "Share" at the top, or right-click to get the Share option. If Wallpaper appears there

Choose that. In addition to that setting that picture as your wallpaper, it should cause Photos to show up in Settings. Oddly, "Set Wallpaper" doesn't appear for me.
#2. If "Set Wallpaper" doesn't appear in the Share menu, try doing a Safe Restart. This bypasses certain potentially disruptive processes, and it often helps. Safe Mode is different for different computers, so see this:
Start up your Mac in safe mode - Apple Support
Then try the Share>Set Wallpaper" thing.
#3. If that doesn't work, make a new user and see if the same problem recurs with it. (This is how I got that screenhot-- I had to go to a different user on my Mac.) To open Photos for this New User, you may have to use the Library Picker by closing Photos and then option-clicking on the Photos icon. Then try the Share>Set Wallpaper" thing in Photos with this new User.
Have you used "Virus killer," or "Mac Cleaner" apps on you Mac? Do you have Login items that you don't recognize?
Let us know how this goes…