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.
You can use Yubico keys as your passwordless logins. Both Google and Microsoft have this option.
Strangely enough, Google lets me "add" my Yubikey as a passkey, but then does not let me sign in with it due to it not being "recognized". If I remove it as a passkey, and only use it as a 2FA token, attempt to sign in and use the "Enter your password" option, it will then let me use the key after I've entered my password as a second factor.
So it seems Google has removed the error (or its not triggering anymore) as they will have been one of the first sites I tried to create a passkey for, but it still does not let you use it as a passkey.
I haven't encountered this issue, yet. I'm using LibreWolf browser (v118.0) and tested logging in my Google and MS account passwordless. BTW, I have Yubico Security Key NFC (the blue one).