The /etc/passwd file contains basic user account information such as username, user ID, group ID, home directory, and default shell. However, it does not store actual passwords for security reasons. Instead, the password field in /etc/passwd usually contains an 'x' or '*', indicating that the encrypted password is stored in the /etc/shadow file. The /etc/shadow file holds the hashed passwords and has restricted permissions to protect this sensitive data. When a user logs in, the system reads /etc/passwd to find the user details, then reads /etc/shadow to verify the password by comparing the entered password's hash with the stored hash. This two-file system improves security by limiting access to password hashes. Normal users cannot read /etc/shadow, only privileged users or processes can. This separation is essential for safe user authentication on Linux systems.