What you know would be a traditional user ID and password. This is something that the user knows and carries around...
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in their head.
What you are would be a physical characteristic of the user that, ideally, can't be modified, such as their fingerprint, face, retinal veins or voice. Authentication using what you are would obviously be biometrics systems.
Combining any two of these factors is two-factor authentication. Using only one, such as only a user ID and password, would be single-factor authentication.
How does two-factor authentication protect you from hackers? Well, each factor has its own unique weaknesses, but each vulnerability is different. An attacker can steal a password and token, but stolen tokens are not easily used. However, tokens can be defeated in other ways, such as by man-in-the-middle attacks, which are a whole different scenario. And biometrics are a different story altogether.
This means two-factor authentication offers a multi-layered approach to security. If one factor is broken one way, the second factor provides protection since it can't be broken the same way. For example, if a hacker steals a user ID and password, say, through a phishing site, if a token -- the second factor -- is also required to log on to the Web site, the attack is blocked. Two-factor authentication provides an extra layer of protection and security.
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