You can no longer use PayPal for in-store purchases. PayPal put an end to that feature at the end of March. They have also put an announcement on their site, confirming the news:
In-store acceptance methods mobile phone number + PIN & the payment code feature in the PayPal Mobile app will no longer be available in the US after March 31st, 2018.
Going forward, PayPal will continue to innovate and provide you with new payment choices at your favorite stores. And whether it’s in-store or online, you can still pay using PayPal in a variety of ways including with a credit card (like a PayPal credit card), debit card or your mobile device via tap and pay on eligible Android devices.
This was probably not a very popular feature for PayPal with many other mobile wallets available. The timing sucks, since this quarter it could have been useful for the Chase Freedom 5% categories. Not a big loss, since PayPal can still be widely used online and even through Google Pay with some limitations.