If you've ever used ssh it's very similar to how ssh keys work. You create a cryptographic key for the site; this is the passkey itself. When you go to "log in" the client and server exchange cryptographic challenges, which also verifies the site's identity (so you can't be phished...another site can't pretend to be your bank, and there are no credentials to steal anyway). Keys are stored locally and are generally access restricted by various methods like PIN, passphrase, security key, OTP, etc. When you're entering your PIN it's how the OS has chosen to secure the key storage. But you've also already passed one of the security hurdles just by having access to that phone/computer. It is "something you have".