A cloud-based identity and access management service for securing user authentication and resource access
As documented, enforcement targets users whose only registered MFA method is SMS or voice through Microsoft's built-in telephony. At sign-in, those users get a registration prompt for a stronger method, such as a passkey in Microsoft Authenticator, and they can't skip it.
The docs don't clearly say whether that prompt also shows on sign-ins that would never have asked for MFA, so I wouldn't rely on it being limited to MFA prompts. The safest plan is to move SMS-only users before the deadline. Use the Authentication methods activity report to find them, run a registration campaign for Authenticator or passkeys, and remove SMS from the policy once they've moved. If you must keep SMS, the retirement page explains that using your own telephony provider avoids this change.
Docs: SMS and voice retirement, FAQ