Your team assigns you a project, not because the project is super critical, but because it's a good "starting project" and about the right size for an internship.
Then, if you fail to show meaningful progress on the problem, or if you have toxic personality issues, they don't hire you back. This is rare.
If you complete only a large piece of the project, or if some blocker comes up partway through and you can't get around it, you generally get a level 59 offer.
If you complete it, you get a level 60 offer, and the quality of your work (and other offers) determines your stock bonus, which can vary wildly. (see levels.fyi for more details)
The typical distribution of outcomes is 10% no return offer, 50% level 59 offer, 40% level 60 offer. A big part of the internship is convincing you to work at Microsoft, because most interns are already competent.