Multi-factor authentication combines something you know (such as a password) with something you have (such as a special USB key) or something you are (such as a fingerprint).  Multi-factor authentication helps provide an additional layer of security between your account and your password.  In a system with multi-factor authentication, you might be asked to provide additional information (such as a fingerprint) after entering your username and password.  This helps defend against unauthorized entry by someone who stole your password.

One of the most common and secure methods of multi-factor authentication is the use of one-time or time-limited passwords.  These passwords change frequently (usually once per minute or more) and are only valid for a very short period of time.  Thus, even if someone finds out your time-limited password from several minutes ago, it's already useless.