TL;DR: Set CURLOPT_PROXYTYPE to use CURLPROXY_SOCKS5_HOSTNAME if you have a modern PHP, the value 7 otherwise, and/or correct the CURLOPT_PROXY value.
As you correctly deduced, you cannot resolve .onion domains via the normal DNS system, because this is a reserved top-level domain specifically for use by Tor and such domains by design have no IP addresses to map to.
Using CURLPROXY_SOCKS5 will direct the cURL command to send its traffic to the proxy, but will not do the same for domain name resolution. The DNS requests, which are emitted before cURL attempts to establish the actual connection with the Onion site, will still be sent to the system's normal DNS resolver. These DNS requests will surely fail, because the system's normal DNS resolver will not know what to do with a .onion address unless it, too, is specifically forwarding such queries to Tor.
Instead of CURLPROXY_SOCKS5, you must use CURLPROXY_SOCKS5_HOSTNAME. Alternatively, you can also use CURLPROXY_SOCKS4A, but SOCKS5 is much preferred. Either of these proxy types informs cURL to perform both its DNS lookups and its actual data transfer via the proxy. This is required to successfully resolve any .onion domain.
There are also two additional errors in the code in the original question that have yet to be corrected by previous commenters. These are:
Here is the correct code in full, with comments to indicate the changes.
<?php
$url = 'http://jhiwjjlqpyawmpjx.onion/'; // Note the addition of a semicolon.
$ch = curl_init();
curl_setopt($ch, CURLOPT_URL, $url);
curl_setopt($ch, CURLOPT_RETURNTRANSFER, true);
curl_setopt($ch, CURLOPT_PROXY, "127.0.0.1:9050"); // Note the address here is just `IP:port`, not an HTTP URL.
curl_setopt($ch, CURLOPT_PROXYTYPE, CURLPROXY_SOCKS5_HOSTNAME); // Note use of `CURLPROXY_SOCKS5_HOSTNAME`.
$output = curl_exec($ch);
$curl_error = curl_error($ch);
curl_close($ch);
print_r($output);
print_r($curl_error);
You can also omit setting CURLOPT_PROXYTYPE entirely by changing the CURLOPT_PROXY value to include the socks5h:// prefix:
// Note no trailing slash, as this is a SOCKS address, not an HTTP URL.
curl_setopt(CURLOPT_PROXY, 'socks5h://127.0.0.1:9050');