The user is set to login without a password. When trying to use that user to make a directory the user is asked to prvide a password. Since they don't have a password the system keeps rejecting them and denies them access to the command. Is there a default password that may be in use?
That the user can log in without providing a password, does not mean that the user does not have a password. It only means that the system does not require it, to let them in.
The answer to your last question is: No, there is no default password.
If you have another user on the same system, who knows their password and has
There is also mention of recovery by dropping to single user mode in the Ubuntu Community Documentation - Lost Password