Then it must need my password to decrypt the key which was used to encrypt the raw data? What if I do not tell them my password, (assuming my password is one way hashed and stored) would that brick the key and in turn brick the data? Clearly I am missing something here..

Edit: or since it is "derived" and not really password which is used for encryption -- the derived thing could well be the hashed password. We are doomed. They might as well serial number their user and use that as key then. Never mind.