SharePoint Online: Set Folder Permissions using PowerShell

Requirement: Change folder permissions in SharePoint Online using PowerShell.

How to Set folder level permissions in SharePoint Online?
To manage folder permissions such as Add or Restrict in SharePoint Online, Follow these steps:

• Navigate to your SharePoint Online document library where the target folder is located. 
• Click on "Details" from the specific folder's context menu >> In the Details pane, Click on "Manage Access" and then "Advanced" links. This takes you to the "Advanced Permissions" page
• From the ribbon, Click on "Stop Inhering Permissions" button and confirm the prompt.
• Now, You'll get the list of users and groups who already have permissions on the folder. When you break the permission, SharePoint copies permissions from its parent (List/library in our case!). Click on "Grant Permission" button from the ribbon. 
  
• Enter the names of the users and groups you want to add permission to the folder, Select the appropriate permission level by clicking on "Show Options" link in the share page. Click on "Share" button to add permission to folder.
  

PowerShell to change folder level permissions SharePoint online:
Lets add permission to SharePoint Online folder using PowerShell. This PowerShell script breaks permissions of a folder and grants permissions using client side object model (CSOM).

#Load SharePoint CSOM Assemblies
Add-Type -Path "C:\Program Files\Common Files\Microsoft Shared\Web Server Extensions\16\ISAPI\Microsoft.SharePoint.Client.dll"
Add-Type -Path "C:\Program Files\Common Files\Microsoft Shared\Web Server Extensions\16\ISAPI\Microsoft.SharePoint.Client.Runtime.dll"
 
#Variables
$SiteURL="https://crescent.sharepoint.com"
$FolderURL="/Project Documents/Active" #Relative URL of the Folder!
$GroupName="Team Site Members"
$UserAccount="Salaudeen@crescent.com"
$PermissionLevel="Edit"

Try {
    $Cred= Get-Credential
    $Credentials = New-Object Microsoft.SharePoint.Client.SharePointOnlineCredentials($Cred.Username, $Cred.Password)

    #Setup the context
    $Ctx = New-Object Microsoft.SharePoint.Client.ClientContext($SiteURL)
    $Ctx.Credentials = $Credentials
    $Web = $Ctx.web

    #Get the Folder
    $Folder = $Web.GetFolderByServerRelativeUrl($FolderURL)
    $Ctx.Load($Folder)
    $Ctx.ExecuteQuery()
    
    #Break Permission inheritence of the folder - Remove all existing folder permissions & keep Item level permissions
    $Folder.ListItemAllFields.BreakRoleInheritance($False,$True)
    $Ctx.ExecuteQuery()
    Write-host -f Yellow "Folder's Permission inheritance broken..."
     
    #Get the SharePoint Group & User
    $Group =$Web.SiteGroups.GetByName($GroupName)
    $User = $Web.EnsureUser($UserAccount)
    $Ctx.load($Group)
    $Ctx.load($User)
    $Ctx.ExecuteQuery()

    #sharepoint online powershell set permissions on folder
    #Get the role required
    $Role = $web.RoleDefinitions.GetByName($PermissionLevel)
    $RoleDB = New-Object Microsoft.SharePoint.Client.RoleDefinitionBindingCollection($Ctx)
    $RoleDB.Add($Role)
         
    #Assign permissions
    $GroupPermissions = $Folder.ListItemAllFields.RoleAssignments.Add($Group,$RoleDB)
    $UserPermissions = $Folder.ListItemAllFields.RoleAssignments.Add($User,$RoleDB)
    $Folder.Update()
    $Ctx.ExecuteQuery()
    
    Write-host "Permission Granted Successfully!" -ForegroundColor Green  
}
Catch {
    write-host -f Red "Error Granting permission to  Folder!" $_.Exception.Message
}

This PowerShell breaks permission inheritance of the folder and grants access to a user and group. Here is the result of change folder permissions:
To Remove User or Group from Folder in SharePoint Online, Use this PowerShell script: How to Remove a User or Group from Folder Permissions in SharePoint Online?

If you want to set permissions on all folders in a SharePoint Online document library, refer: SharePoint Online: Grant Permission to Each Folder in a Document Library using PowerShell

PnP PowerShell to Change Folder Permissions in SharePoint Online

#Config Variables
$SiteURL = "https://crescent.sharepoint.com/sites/marketing"
$ListName="Documents"
$FolderRelativeURL = "/sites/marketing/Shared Documents/2019"
$UserAccount = "Salaudeen@crescent.com"
 
#Connect to PnP Online
Connect-PnPOnline -Url $SiteURL -Credentials (Get-Credential)

#Get the Folder from URL
$Folder = Get-PnPFolder -Url $FolderRelativeURL
    
#Set Permission to Folder
Set-PnPListItemPermission -List $ListName -Identity $Folder.ListItemAllFields -User $UserAccount -AddRole 'Contribute'

Here is my another post on SharePoint Online: PowerShell to Get Folder Permissions