Earlier quoted context omitted.
This lets users sign in with an existing email address, so they don't need any new sevice or identifier to remember. It's decentralized; Mozilla has a service for web developers for convenience, but any site can implement the protocol itself instead (or use another provider). And it's designed to let browsers handle the login flow in the future, simplifying login and account creation for end-users.
Most of the oauth services I used allowed me to create an account with ... an e-mail and a password. Literally the same thing, here.
I'm just assuming it works this way, as passing the password along would defeat the security of the system and make you more vulnerable.