OK. After reading, Escrow security for iCloud Keychain, I think I have a better understanding.
The iCloud Keychain is offline storage of the user's security data and is only used to restore the user's private keys on his/her devices.
"To recover a keychain, users must authenticate with their iCloud account and password and respond to an SMS sent to their registered phone number. After this is done, users must enter their iCloud security code."
The HSM cluster verifies the data the user entered and then returns the escrow record, which is the iCloud Keychain data.
" Next, the device uses the iCloud security code to unwrap the random keys used to encrypt the user’s keychain. With that key, the keychain—retrieved from iCloud key-value storage and CloudKit—is decrypted and restored onto the device."