Currently one of the requirements to use the Dynamics 365 App for Outlook is to have the Reading Pane enabled in Outlook, if the Reading Pane is not enabled then the Dynamics 365 Button on the ribbon is greyed out. (Documentation included below)

Many of our clients, and I'm sure others, do not use the Reading Pane but still want to use the Dynamics 365 App for Outlook functionality without having to open the email in a separate window, suggest that the Dynamics 365 App for Outlook button is still able to be used when the Reading Pane is not enabled.

https://learn.microsoft.com/en-us/troubleshoot/dynamics-365/sales/app-does-not-appear-within-outlook