In information security, the processes of identification, authentication and credentialing are closely linked, authentication being the technologies and procedures used to confirm one's identification to a secure information system. You can think of it as a safeguard against identity theft.
One of the basic ways to think about authentication is that it confirms your purported identity with:
These are all factors in authentication, along with your claimed identity. Two-factor authentication, at its most basic, is the combination of user ID and password.
Since passwords, as well as user IDs, can be stolen, more secure alternatives are desired for two-factor identification. Some of the oldest techniques include one-time passwords, and the use of security tokens.
A security token is a hardware and software device that generates a changing authenticator to be sent in response to a challenge after the user ID is entered. There are two basic types, both usually of credit card size. One displays a changing number, generated by a cryptographic hash of a unique number in the physical authenticator, and a time code synchronized between the token and an authentication server.
The other, somewhat complex, has a keypad on which a challenge number sent by the authentication server is manually entered. It also may be necessary to enable the security token by entering a personal identifier. These factors, as well as a time code and token identifier, form the hash to be sent back.