You choose under Discount method when you create a discount. It can't be changed afterwards. To switch, create a new discount and delete the old one.
Automatic discount
Applies by itself when the conditions are met.
The Title is shown to customers in the cart and at checkout.
Best for free shipping thresholds and anything you want every eligible customer to get.
Shopify allows up to 25 active automatic discounts at a time across all apps, including scheduled and test-mode ones.
Discount code
Applies only when the customer enters the code at checkout.
The code is what customers see.
Best for exclusive offers: newsletter sign-ups, influencers, customer service gestures.
Has usage limits under Maximum discount uses:
Limit number of times this discount can be used in total
Limit to one use per customer
Usage limits only exist for discount codes. Shopify doesn't support them on automatic discounts.
New discounts start as codes
A new discount starts on Discount code. If you want it to apply automatically, switch to Automatic discount before you create it.