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Your screenshot doesn't help, as it doesn't show the selected source. "Custom Order" is only possible when you have a single collection as the source, or you have a folder as the source.....but note that the folder has to be a single folder, it cannot be a folder which contains several sub-folders. Nor can a Collection Set be selected as the source, only the individual collections within.
Also, note that the Custom Order option is also not available in the "Previous Import" special collection in the Catalog Panel.
So what have you selected as your source in your screenshot?
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Usually this is because you are viewing a Smart Collection or a Collection Set - the population of which is dynamic and incidental.
If the same images are viewed as explicit members of a standard Collection, then custom ordering is possible for that - and the same thing, within a given Folder where they are stored.