Yeah, that’s when you try to login without having registered the YubiKey, but presumably Windows Hello.
You have to register the security key = YubiKey in the web vault first (by choosing “security key” after the “Read Key” as you described here):
As you wrote further on:
When you did that, you didn’t register the YubiKey but Windows Hello. You have to choose “security key” after / when selecting “Read Key”.