That's ecryptfs. It's no longer supported by newer versions of Ubuntu. The key is not your password. It's somehow protected by a pam module I believe to remember. I once noticed that being root allows you to su into their account, but not decrypting their home directory. So possibly the encryption key is encrypted using the password. One might need the old password to reencrypt the encryption key with the new password.

I had no interest to dig deeper, so I am not sure.