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Misspelled words are not appearing as underlined in red, not are grammar errors. Here are what my preferences for spelling and dictionary are:
*nor are grammar errors! Jeez, what a bad place for a typo.
I should also mention I am macOS Big Sur 11.6
And yes, I have tried clearing preferences already, and have set the language to match in the the Control panel. Neither solved the problem.
Just to say - InDesign won't check grammar - it only spellchecks.
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Your screen shot does not show Enable Dynamic Spelling to be checked. It needs to be for the underlining to work.