The first part to understand is the difference between a User and a Login in SQL Server. This article provides a brief rundown to understand the difference, but to put it simply, a Login is a server-level principal that provides authentication and authorisation for server-level access. A User is a database-level principal that provides authorisation for database-level access.
There are many scenarios, but typically a Login is mapped to one or more Users, but only one User per database. A User is only ever mapped to one Login (except for contained database users, but that is a different scenario that can be ignored for now).
The dbo User is a built-in database user in every single database that represents the Database Owner. This user has full unrestricted access to the database. While you cannot login to a server as "dbo", you can login with a login that is mapped to the dbo user in one or more databases. When the database context of the connection is a database where that login is mapped to dbo, then the identity in that context is as "dbo".
In addition, as per comments, any login that has the sysadmin role will appear as dbo in every database as well, even if they're not explicitly set as the database owner.
To answer your specific questions:
During security audit we are being asked if the dbo login is
interactive. My understanding is that the account is automatically
created and managed by SQL server itself and is not directly
Yes, the dbo account is built-in and cannot be deleted, locked, disabled or removed. It also cannot be logged into directly, i.e. you cannot login as user "dbo" with a password.
I have tried to the demonstrate that a sysadmin users would appear in
SESSION_USER as dbo when authenticating but they're not fully
convinced. Their question is now if it is possible to directly
authenticate to dbo by logging in with its password.
Is this possible? I don't even know where I would find dbo's password if it has one.
No, it is not possible. There is no "password" that exists for dbo. There may be a password for the mapped Login if it is a SQL Authentication login, but no direct login for dbo.
This article provides an explanation of dbo and also some useful queries for identifying your logins that are mapped to dbo in each DB. I would suggest you advise the auditors that it is not possible in SQL Server to login directly as dbo, nor can you adjust any permissions or disable/remove this account, then provide them the list of mappings and a list of sysadmins or logins with CONTROL SERVER permissions to illustrate who can assume the dbo user context in each database.