To explain:
1- The passwords we have all been using for decades are not safe anymore. Passwords can be, and are, stolen by malware, exposed in data breaches, intercepted in transit through the internet and - increasingly - phished. The last example ('phished') means that people are being tricked into willingly giving away their passwords. Study after study shows that phishing accounts for the great majority of stolen passwords.
Every day in Microsoft Q&A we hear from dozens of people whose user accounts were taken away from them because a clever thief stole their password. These people will never see their user accounts again, and everything in their accounts, including their credit cards, email contacts and personal information is not only gone forever ... it's now in someone else's hands! There is nothing that Microsoft can do to help someone who unwittingly gives away their password. Passwords have to die - and the faster the better!
2- A passkey (which was not invented by Microsoft) is so much safer than a password. Passkeys use the same technology that banks and governments have been using for decades to safeguard their information. It's only recently that the hardware in consumer computers and even phones has become powerful enough to take advantage of this fantastic technology.
3- Unlike a password, your passkey never leaves your computer (or your phone). Instead, your passkey is securely locked inside your device's hardware where it is completely inaccessible to the operating system. Windows only knows that you have a passkey. Your passkey is used to implement the complex technology that has protected financial institutions and military installations for decades.
Because the passkey never leaves your device, it can't be stolen by malware, or intercepted while travelling through the internet, and it won't be stored on another company's computer where it can be exposed when that company gets hacked. And because you don't type your passkey anywhere, you can't be tricked into giving it away.
This makes a passkey orders of magnitude safer than a password. I would be afraid to go online without my passkeys!
4- Passkeys are used with online accounts. They're not needed for a local account. I use a local account to sign in to my desktop computer, so my password isn't sent to anyone else. A Microsoft account is an online account; when you sign in to your computer with a Microsoft account, your password is sent to Microsoft, which is how you are able to use all the features of your Microsoft account, but that makes your password available to anyone who wants to try to steal it.
With a passkey, instead of sending your password out across the internet, you prove your identity to your own computer, with something that can't be guessed like your fingerprint or your face, or even a PIN. (A PIN will lock your computer after a small number of wrong guesses, and even a 4-digit PIN has millions of possible combinations.) Once you have proven your identity to your computer, the computer will employ that super secure technology I spoke of earlier.
5- Microsoft - and Google and Apple and so many other online account providers - are trying to get everyone to switch to passkeys because they are so much safer than passwords. Even if someone says they don't care if their account is stolen, stolen accounts can be (and are) used to attack other systems and to commit crimes. Thus, everyone is safer when passkeys are used.
Passkeys are new to consumers, and there will always be some people who are uncomfortable with new things or don't understand what they're for. And since passkeys use complicated technology, they're hard for many people to understand. Therefore, and until a better way comes along, the technology industry has chosen to 'dumb down' the whole process by sticking a box in front our faces and saying, in effect, just do this.
You should just do it. You and everyone else will be safer because of it, and you can always read about it afterwards.