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.
This is something different to PassKeys. “Sign in with Apple” is Apple telling online service “let him in”, while PassKeys is storing your authentication data on your device.