Passkeys stored in password manager - Windows instead wants mobile or hardware key

https://support.microsoft.com/en-us/account-billing/create-and-save-a-passkey-e92cd3e0-11fa-4630-a5ea-3ccc0396b3d9 notes that Windows passkeys can be stored in password managers. However, when I am challenged for a passkey Windows only provides two options 1) a mobile device, or 2) a physical hardware key.

Given these two exclusive options, the question is how to authenticate using passkeys stored in a password manager?

Thanks very much