The passcode is not, but its prompting you to share a password with your “Apple TV” so that password will be shared.
That seems a little goofy. Why don't they just rendezvous in the cloud such that the authentication on the iPhone is imputed upon the Apple TV, without the Apple TV ever possessing the password? This is how all other streaming things I own work.
To rendezvous with the cloud, it needs a network connection first. This pop-up is meant to transmit the network password your iPhone uses so the factory reset Apple TV can establish its own network connection.