Using New Outlook on Windows for professional communication and productivity
Disclosure: I build a third-party Outlook add-in, so factor that into the last line. The rest is just what I have had to learn.
Adding the part the roadmap entry above does not explain — why it is missing rather than broken. Word's mail merge drives Outlook through MAPI, and only classic Outlook for Windows exposes that interface. New Outlook does not, so Word tries to hand the merge to classic Outlook and it stops there. That is also why what you are seeing looks like three half-features: the mail merge in new Outlook today is the basic version, which gives each recipient their own copy of the same message. It does not personalize the body per recipient, which is exactly why it feels like BCC with extra steps.
Until the Advanced version actually lands, the only way to get the full Word merge is classic Outlook — turn off "Try the new Outlook", or, on builds where that toggle has been removed, start Outlook (classic) from the Start menu and set it as the default mail app. Worth doing before a big send anyway: Word's merge has no pacing of its own, and Exchange Online allows about 30 messages a minute and 10,000 recipients per rolling 24 hours, so large merges tend to crawl or stop partway rather than fail loudly.
If the sends cannot wait for September, third-party add-ins do personalization on Outlook on the web today (SecureMailMerge and Mailmeteor among them; mine is OutMass). Otherwise classic Outlook remains the complete answer.