Which add-on did you install? Perhaps it disables the built-in feature and replaces it with its own feature... just a guess.

Were you previously using Firefox's built-in password manager successfully before installing the add-on?

In case this is a problem with the new "in-tab" preferences dialog, you could try switching back to the old dialog for now. This is how:

(1) In a new tab, type or paste about:config in the address bar and press Enter/Return. Click the button promising to be careful.

(2) In the search box above the list, type or paste pref and pause while the list is filtered

(3) Double-click the browser.preferences.inContent preference to switch it from true to false

Does that make any difference to whether the checkbox is enabled?

(Note: I don't know whether the old dialog will be in Firefox forever or is a transitional feature. As you've probably noticed, the long-term trend is to remove things that pop up.)

Thanks for help jscher but turns out I was using private browsing and passwords are, naturally not remembered there so "Remember passwords is disabled." This does make sense to me now.