I think the reason this isn’t working for some is lacking editor or above rights to the portfolio in question.
I’d advise to make sure everyone who can use the project template is at least editor for the portfolio. Adding teams to portfolios makes this easier.
The copy used to be a bit confusing:
It has been made clearer since.
@Sara_Skowronski I updated the title to be more specific, as “Automatically add projects to Portfolios from project template” already can be done.
This feedback might also help solve your request: Set portfolio fields when creating a project from a template