Brake bleed screws use a mechanical seal where the tapered end fits in a matching female end inside the port. The threads should not leak at all when the screw is torqued down as the mechanical seal cuts off any pressure from reaching the threads. The threads can leak when open as the thread fit is typically a bit loose. If its leaking through the nipple, then the seal is not seating properly. I would remove the screw and make sure there is no debris trapped on the sealing surface and inspect for damage to both surfaces. If its dirty, clean it off and try it again. If its damaged, it may require replacement of the screw, the cylinder, or both.
Thread sealant should not be used. Some bleed screws do have it, but its only to prevent fluid from moving past the threads during the bleed process. Trying to fix a leak of the mechanical seal with tape on the threads is a band-aid and probably not going to seal properly long term. Thread tape is typically used on tapered threads (NPT, BPT) which become tighter as you screw it in more. If you want to put sealant on the threads, I would avoid any kind of thread tape. They tend to tear as you screw it in and with bleed screws in particular, the tape would probably get shredded up as you loosen and tighten the screw during a bleed. Most liquid sealants will likely be designed to be torqued down wet and will dry in place. Since a bleed screw is designed to be open and closed several times during a bleed procedure, it would likely become useless as it may not reseal correctly. There are thread seals you apply to one side and let dry that are reusable to a degree. Not sure if this stuff is easy to find in stores or not. Unless you are vacuum bleeding, I wouldn't bother with it.