Confirm that your password works on the AOL website web mail interface directly, as it's fairly common for AOL accounts to get hijacked. Then follow the Apple Troubleshooting document for problems with mail, and see if that identifies any issues with your configuration.
Remember too that there are two places for the password — there's a send or mail server path (the SMTP server) and related settings within mail, and a read and receive path (the POP or IMAP server), each with its own server and port and SSL/TLS setting (almost always enabled) and user and password settings. Both of these have to be correct for your particular account. The troubleshooting guide has some details on this.
BTW: I never enter a password into that dialog box. Barring an actual password change that I've requested with the mail server involved or a corruption within the local keychain or a mail server account that's been hacked and the password changed, that mail dialog box is unfortunately going to get me into trouble — dismiss that dialog box, and then figure out what the network or connectivity issue is.
The dialog tells that the problem might be the password, but — barring a requested change or a keychain corruption or a hacked mailserver account — that's seldom the case in my experience. Trying the original and maybe some other passwords repeatedly can then get me locked out of my account, too.