If my phone's camera is broken but both devices have bluetooth, it can do the handshake over bluetooth.
If I'm on someone else's computer and I want to use a passkey on my authenticator on my keychain, I'll just plug it in and then tap the button on the authenticator.
Meanwhile, if I logged in with the password and the account only has a password then they have a full copy of my entire authenticator to the account. With the passkey, once the session is invalidated the access is gone.