error TS2345: Argument of type 'T' is not assignable to parameter of type 'object'

Change signature of the function, so that generic type T extends type object, introduced in Typescript 2.2. Use this syntax - <T extends object>:

function create<T extends object>(prototype: T, pojo: Object): T {
    ...
    return Object.create(prototype, descriptors) as T;
}

The signature for Object.create was changed in TypeScript 2.2.

Prior to TypeScript 2.2, the type definition for Object.create was:

create(o: any, properties: PropertyDescriptorMap): any;

But as you point out, TypeScript 2.2 introduced the object type:

TypeScript did not have a type that represents the non-primitive type, i.e. any thing that is not number | string | boolean | symbol | null | undefined. Enter the new object type.

With object type, APIs like Object.create can be better represented.

The type definition for Object.create was changed to:

create(o: object, properties: PropertyDescriptorMap): any;

So the generic type T in your example is not assignable to object unless the compiler is told that T extends object.

Prior to version 2.2 the compiler would not catch an error like this:

Object.create(1, {});

Now the compiler will complain:

Argument of type '1' is not assignable to parameter of type 'object'.