Passkey is some sort of specific unique key to a device allowing to use a pin on a device instead of the password. But which won't work on another device.
Now I don't know if that key can be stolen or not, or if it's really more secure or not, as people have really unsecure pins.
Depends on your personal choice. You can definitely limit them to a single, hardeneddevice if you want the highest level of security.
For most users and most situations, a synced solution will be preferable.