As far as i know:
In the htpasswd file are stored the MD5 encrypted passwords
and NOT the plain text passwords
(plain text password is an option on Windows boxes)
When a client (browser) want to authenticate it submits the MD5 encrypted user input
(what the user type in the Identification box)
this encrypted value is then compared to the one stored in the htpasswd;
if it's a match, that means that the user type the (right) password and the authentication is a success.
This is what I read too in your quote (even if I have to admit that the sentence is a bit odd for my english ('
are used' ?)
Note: As far as I remember Apache use a
modified MD5 function (Understand MD5 hash produce by standard tools won't match what is stored in the htpasswd file)
"Trying to be a SMART lamer" (thanx to
Merlyn ;-)