I had same/similar problem two days ago.
@use is a new directive introduced in the new official Version ‘Dart Sass’ and replaces ‘@import’ which is depricated now.
The popular Extension ‘Live Sass Compiler’ in VS Code is not longer supported by the maintainer for some time. So unfortunately the Sass Version is not updated in that extension…
In VS Code for ‘Dart Sass’ I found the the Extension ‘DartJS Sass Compiler’:
https://marketplace.visualstudio.com/items?itemName=codelios.dartsass
Actual I just did a quick testing so I cannot report much about it. But on the first glance it is running well. But as it is another extension you may have to change some settings.
UPDATE
Additional to the above reported exentsion DartJS Sass Compiler with actual SASS version I found an actualised and actual maintained fork of Live Sass Compiler. It has been deep hidden in the searching reuslts. As it is a very popular extension in VS Code here the link to the fork:
https://marketplace.visualstudio.com/items?itemName=glenn2223.live-sass
Remark:
I played arround with both extension. Both are doing the job well and have advantages.
‘DartJS Sass Compiler’ has the additional possibility for more detailed output like information about sass version and watchers. And additional to included SASS version it allows to use your own SASS version if installed to your system or locally to your project. So there is no/less dependency on updates by the maintainer.
‘Live Sass Compiler’ runs out of the box with included sass version. As it is a very popular extension in VS Code there is a special advantage: it seems it keeps your settings in the old projects running.
I think both are good solutions.