That option doesn’t control whether a DLL is generated as output but rather which version of the C++ runtime library is used: static or DLL. The pre-compiled GLFW static library in the package you downloaded was compiled for Multithreaded DLL and will only work with that setting.
This error means that the GLFW static library file you are using is calling the C++ library function free as if it’s in a DLL but you are then linking the whole application with the static library form (i.e. Multithreaded) of the C++ runtime library instead.
If you want to use Multithreaded for your application you need to download the GLFW source package, configure it with CMake, change the Runtime Library option in Visual Studio to Multithreaded and compile it. Then everything will match.