Close, but you are still trusting the device you own. If I were to compromise that device, I could capture that key and use it. Again, this is my limited understanding, but a zero trust solution works in such a way that the actual keys are not stored anywhere. During setup, new temporary keys are generated. A keypass binds to the temporary key for use of authentication. The temporary key can be revoked at any time for any reason, whether it's due to a breach or routine policies. It can be as aggressive as it needs, and the implication is that if someone else (either you or an attacker) got issued a new temporary key then the other would not receive it. Using an incorrect temporary key would force an initialization again, using the actual keys that aren't stored anywhere.

The initialization process should be done in a high trust environment, ideally in person with many forms of vetting. But obviously this doesn't take place online, so there is the risk that your device is not trusted. This is why the process falls back on other established processes, like 2FA, biometrics, or using another trusted device. How this is done is up to the organization and not too important.

But don't get too hooked on the nuances of passwords, keys, passkeys,etc. The entire purpose is to limit trust, so that if any part of the process is compromised, there is nothing of value to share.

Disclosure: Worked in military and this seems to be a consumer implementation of public/private key systems using vector set algorithms that generate session keys, but without the specialized hardware. It's obviously different, but has a lot of parallels, the idea in this case is that the hardware binds to the private/public keys and generates temporary session keys to each unique device it communicates with, and all devices can talk with members of it's own vector set. Capturing a session key is useless as it's constantly being updated, and the actual keys are stored on a loading device (which is subsequently destroyed afterwards, ensuring the actual key doesn't exist anywhere and is non recoverable, but that's another thing altogether). My understanding of passkey systems is solely based on this observation, and I have not actually implemented such a solution myself.