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Applications defined in Azure AD are allowed to make app-only calls by sharing a certificate with Azure AD. Azure AD will get the public key certificate and the app will get the private key certificate. Although a trusted certificate should be used for production deployments, cmdlet New-SelfSignedCertificate certificates are fine for testing/debugging (similar to local web debugging with https). Here are the steps to generate a self-signed certificate with cmdlet New-SelfSignedCertificate and exporting it for use with Azure AD.

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