Not true - they use a challenge/response system. The far end system (website, whatever) has a pubic key, your hardware (TPM, FIDO2, Secure Enclave) has the private key.
Why is this better?
When you enter a password anything MITM or a phishing site can capture it as you enter it. And in this day and age, can also capture the MFA code you enter and replay it instantly to the logon service. TOPT, SMS, etc - see Evilginx for example. Modern phishing sites even forward on the auth back to you, resulting in your browser logging you in to the real site - from your perspective you don't even know your credentials were just stolen. It's seamless.
MFA is utterly defeated in 2026 (even challenge/response MFA just gets blasted until someone gets fed up and allows the request). It's window dressing at best.
When you register a passkey (lets say with your bank) - bank.com servers have a store of your public key. When you try to auth to bank.com it responds with a fresh random challenge and encrypts it with your public key. Your hardware chip has the corresponding private key to respond to the challenge and a store that says "here's the signature to reply to bank.com" - it will only ever reply to bank.com, only your hardware can reply, and only bank.com can decrypt the response.
You can't be MITMd nor phished. The transmitted data in either direction is utterly useless to anyone but the two endpoints.
They can also be hardware bound - so the encryption happens entirely in hardware, never exposing the OS/memory/etc to the encryption data.
" device I don't control " - On device hardware based passkeys are really designed for organisations who had multiple system administrations with MDM solutions and so on. If you lose access, who cares, your settings get copied to a new system by your admin.
The consumer version is either FIDO2 keys, Synced (i.e. iCloud) keys, or stored within a password manager.
Storing passkeys within a password manager is, of course, not as secure as storing them within hardware (in this case passkeys can be stolen and replayed if the password manager or Apple, etc, account is hacked) - but they are still far, far, far more secure than using passwords and TOTP codes!