Australia cut a huge deal to purchase 12 diesel-electric attack submarines with France 5 years ago, basically taking the current-generation French nuclear attack submarine and replacing the nuclear power plant with a diesel one. Japan and Germany were also in line. France does not sell nuclear propulsion tech because of nuclear proliferation concerns. That project has been running over budget and the Australians were complaining the French were dragging their feet about the technology transfers and establishing Australian manufacturing for the subs, which was a big consideration for Australia, their current obsolescent Collins-class subs being Australian-made.

Contrary to what many people say, modern diesel submarines are actually stealthier than nuclear ones, because they are smaller (this would not apply to a modified nuclear attack sub, of course). In 2007 a Chinese diesel sub surfaced near the USS Kitty Hawk carrier, having apparently been undetected in the middle of a US exercise. They do have less endurance, but that is only an issue if Australia expects them to patrol far beyond its borders.

Apparently 6 months ago Biden started a secret dialogue with the Australians, offering nuclear propulsion tech to counter China. The US only ever did that with the UK, not even with Canada. The Australians' relationship with China has been deteriorating markedly, even though it is their largest market. Conversely the Chinese banned most Australian imports but not iron ore, because they don't have (yet) an alternative supply to feed their steel industry, although Guinea (in Africa) is a potential candidate. Keep in mind Australia is largely a resource extraction economy, despite being an advanced industrialized nation.

The Australians don't have any nuclear tech, not even a civilian nuclear power program, so any nuclear subs would need to be fueled and serviced by the US or the UK, which means Australia is effectively ceding part of its sovereignty (just as the British did, because their Trident nuclear missiles are 100% US-made). This is a significant development as up to now the Australians wanted to preserve their autonomy.

What are the French upset about?

1) The loss of a AU$ 90B contract, which means probably a €30B hole in France's naval R&D that will need to be plugged somehow. For a middling country like France, that is a lot of money.

2) France has a significant presence in the Pacific, unlike every other European nation, even the UK. 2M French citizen live there, and 7000 military personnel. France also has the largest maritime Exclusive Economic Zone in the world thanks to its possessions in the Pacific, but there are separatist movements in New Caledonia and Tahiti. The French-Australian deal was also part of a strategic cooperation deal with Australia, as the French are just as concerned about Chinese incursions in the Pacific as the Australians, and it has the benefit of being a deal with a peer, not as the junior partner of the US superpower (although of course Australia is the superpower of the Southern Pacific, but that means little compared to the US or China). This strategy is all in tatters now.

3) The French were blindsided, learning of the AU-UK-US deal from the press release, in the most humiliating way possible

4) They were not invited to participate in this AUKUS military alliance.

The consequences are severe and the US completely underestimated that. In 1966 the US commander of NATO refused to answer President de Gaulle's question of whether US nuclear weapons were stationed in France, and in retaliation France withdrew from NATO unified command (and NATO SHAPE headquarters in Paris and Rocquencourt near Versailles had to be moved to Belgium), and expelled US troops stationed in France.

France has recalled its ambassadors to the US and to Australia for consultations, which is just one step short of cutting diplomatic relations. To do so with the US is simply extraordinary, it's only happened once before, during the French revolution.

President Biden rightfully criticized Donald Trump for attempting to contain China while burning bridges with all its allies at the same time by waging sanctions against all of them, but this is a blunder of the same magnitude. France was the more China-skeptic of the major European powers, whereas Germany basically cares only about its exports and appeases China, and the UK was trying to have it both ways by becoming the chief Chinese investment partner in Europe. With this stunt, the US gets Australia to abandon its former policy of independence from the US, but basically sets back its efforts to mobilize Europe against the Chinese by at least 5 years,