Hashing differs from encryption in that it is irreversible, because two or more strings might result in the same hash if the hashing function is applied to them (hashing is not injective).

But since your password will always yield the same hash you can compare the two hashes and if they are equal you are considered authenticated. If you try to log in with a different password (or even the hash of the correct password) then it will produce a different hash resulting in a failed authentication attempt

The way crackers get a password if they have the hash is by guessing pw candidates and using the hash function on them, if its the same as the hash they have they found the/a valid password. The guessing can be quite involved and with enough time and data about a victim often 12-13 digit passwords with special characters and all can be cracked - If the victim used a somewhat mnemonic pw that is. Generated pws from a password safe are much safer (but usually also longer).

In your case I suspect MS was storing a history of hashes which is not advisable as it gives potential crackers more to work with, but its way less bad then storing plain text or encrypting passwords