You have the option to set up the 2-step verification using an email address, authenticator app or a phone. Whenever you sign in Hotmail account through a new device or from a new location, you will be sent a security code either to your email address or phone or app that you need to enter in order to gain access to your Hotmail inbox as we explain here.
Two step verification set up option
Once you turn on the two step verification, you will receive the security code on your chosen device every time you log in from an un-trusted device. If the two step verification is turned off, then you will not have to get access to your Hotmail account through the security code. Your password will be more than enough.
Hotmail Login with 2-step verification
By setting up the two step verification, you will enable it across all the services offered by Microsoft like OneDrive, Skype, Outlook.com, Microsoft Office, outlook.com, Bing, etc. The following is the procedure to set up the two step verification for Hotmail.