Instead of a password, the application gets an access token from the authorization server, limited in lifetime and scope. A refresh token lets it obtain new access tokens without the user signing in again.
For interactive applications the Authorization Code flow with PKCE is the standard; for service-to-service access, the Client Credentials flow. The once common Implicit flow and Password grant are deprecated.
Admins mostly meet OAuth 2.0 in mail: Microsoft 365 and Google require modern authentication via OAuth 2.0 instead of basic auth for IMAP and SMTP. Old devices and scripts that only support username and password stop working.