A Passkey is a new standard that aims to eliminate passwords. If a website supports passkeys you will be prompted if you wish to use a Passkey. That can happen even if you never used a passkey before. It's giving you the option to create and use a passkey.
The way a passkey works is you scan a QR code with your phone using TouchID or FaceID and create the passkey. The key is made up of a public key and private key. The private key stays on your mobile device. The public key is sent to the website. When you login the website sends the public key to you Mac and if you have a matching passkey it tells the website you are who you say you are and it just single-signs you into your account without a password.
You've no doubt heard about dark web password leaks. That means a website was hacked and the passwords stolen and the bad guys decrypted them. So now they have a list of passwords for many users. They typically try to use that password on other major sites such as Apple, Google, Microsoft, Facebook, Instagram, etc., etc., etc. If you shared your password among accounts now they are logging into your stuff. By using passkeys the password is never sent to the website so it cannot be stolen. The public key is worthless without your private key.
Passkeys can also be shared with others, allowing you to share access to someone else using your passkey. You can revoke their access at any time.
https://it-training.apple.com/tutorials/support/sup540/
The new macOS Sequoia adds Passwords App that helps you better manage your passwords, passkeys, etc.
Use the Passwords app to create, manage, and share passwords and passkeys across Apple devices - Apple Support
About the security of passkeys - Apple Support
Use passkeys to sign in to apps and websites on iPhone - Apple Support
If there is any doubt about a particular passkey you can delete it.
Find saved passwords and passkeys on your Mac - Apple Support
