You must be using the latest AzureAD module

Connect-AzureAD

AzureADDirectorySetting Commands 
Get-AzureADDirectorySetting
Get-AzureADDirectorySettingTemplate
New-AzureADDirectorySetting
Set-AzureADDirectorySetting
Remove-AzureADDirectorySetting



See if you have any Directory Settings for Groups configured:
Get-AzureADDirectorySetting | ForEach Values

If values are returned then you have settings configured.

If no values are returned then you will need to create new directory settings

$template = Get-AzureADDirectorySettingTemplate | where-object {$_.displayname -eq “Group.Unified”}
$setting = $template.CreateDirectorySetting()
New-AzureADDirectorySetting -DirectorySetting $setting

You should now have settings when you run: 
Get-AzureADDirectorySetting | ForEach Values

Configure settings: 
$settings = Get-AzureADDirectorySetting | where-object {$_.displayname -eq “Group.Unified”}
$settings["SETTING NAME"] = ""
Set-AzureADDirectorySetting -Id $settings.Id -DirectorySetting $settings


Examples:

$group = Get-AzureADGroup -All $True | Where-Object {$_.DisplayName -eq “ENTER GROUP DISPLAY NAME HERE WHO WILL HAVE ACCESS TO CREATE GROUPS”} 
$settings = Get-AzureADDirectorySetting | where-object {$_.displayname -eq “Group.Unified”}
$settings["ClassificationDescriptions"] = "Internal:This is internal only,External:External users can access,Confidential:Highly secure" 
$settings["DefaultClassification"] = "Confidential"
$settings["PrefixSuffixNamingRequirement"] = "ogrp-" 
$settings["AllowGuestsToBeGroupOwner"] = "false"
$settings["AllowGuestsToAccessGroups"] = "true" 
$settings["GuestUsageGuidelinesUrl"] = "https://domain.sharepoint.com/sites/intranet/Pages/Groups-Guest-Usage-Guidelines.aspx"
$settings["GroupCreationAllowedGroupId"] = $group.ObjectId 
$settings["AllowToAddGuests"] = "true"
$settings["UsageGuidelinesUrl"] = "https://domain.sharepoint.com/sites/intranet/Pages/Groups-Usage-Guidelines.aspx" 
$settings["ClassificationList"] = "Internal,External,Confidential"
$settings["EnableGroupCreation"] = "true"
Set-AzureADDirectorySetting -Id $settings.Id -DirectorySetting $settings


Remove settings:

$settings = Get-AzureADDirectorySetting | where-object {$_.displayname -eq “Group.Unified”}
Remove-AzureADDirectorySetting -Id$settings.Id

Import a txt file of bad words into the BlockedWordsSetting:

$badwords = get-content <filepath.txt> -raw
$settings["CustomBlockedWordsList"] = $badwords