This is something weird that I am unable to figure out. I did not install sass-loader from Vue, nor did I configure webpack for SCSS, but it still works fine when I use
<style lang='scss'>....some SCSS code here....</style>
inside my Vue component.
After some research: vue init is deprecated syntax for Vue-CLI 2.x that used to clone templates into your new project folder. One of these templates is the webpack-simple which you defined in your command.
In the webpack.config.js for this template, you can see that sass-loader is preconfigured.
Since Vue-CLI 3.0 and up, the command used to generate a new app is vue create
.