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.
Even FIDO2 MFA doesn’t protect you from attacks that involve malware running on your machine. If there was a keylogger on their machine then that machine is likely compromised in other ways, and any credentials entered or stored on it should be considered compromised and should be reset.