SFTP is a protocol that runs over SSH, so this means SFTP using passwords will not work by default when SSH password authentication is disabled.
To enable SSH password authentication, you must SSH in as root to edit this file:
/etc/ssh/sshd_config
Then, change the line
PasswordAuthentication no
to
PasswordAuthentication yes
After making that change, restart the SSH service by running the following command as root:
sudo service ssh restart
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