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A passkey is an additional layer of security to your Microsoft account associated with your Xbox console. You can use this Passkey as an alternative to your account’s user ID and password.

While selecting or changing the Sign-in and Security Preferences on your Xbox account, you can set the console to ask for your Passkey before you sign in, buy anything or change any setting. Thus, a passkey ensures you are safe from fraudulent or accidental purchases.

For more details Visit www.microsoft.com/link

Here are the key benefits of having a passkey
Passkey is beneficial since it will help you avoid the charges you might be making up on the Microsoft account that you are entirely unaware of. When you enable the Passkey, the user will be required to enter it for any purchase, helping you protect the account from malicious activity.
Passkey also helps you protect your account by not letting it slide into the hands of the children. Since many times a child can access the parent’s account and do various things, having a passkey helps you have substantial control over it.
You can sign in to any of your Xbox profiles since a passkey is linked with the account, and you don’t have to do multiple signing in, helping users to focus on the better things only.
If you forgot your Passkey, when you visit the microsoft code and enter the login details, the Xbox console will notify you that the Microsoft account password has failed.
How To Change Your Existing Passkey
So if you have the Passkey with you and are annoying to find a way to change it somehow, then here is how it can be done.

Click on the Xbox button.
Then go to Profile & system > Settings > Account.
Choose the Sign in, passkey option.
Choose to create a new passkey option.
Then enter your Passkey.
Confirm it.
This way, you can use the old Passkey to make the changes and get over the issue you are facing.