If you were really interested in how to form the passwords, then the login migration script here will give more insight.
Link : How to transfer the logins and the passwords between instances of SQL Server 2005/8
The use of pwdcompare can be demonstrated as follows -
If I was daft enough to use my cat's name as a password (I'm not), the following query would return the username I had used the password with.
select name from sys.syslogins where pwdcompare('coco', password) = 1
cannot engineer sql password hash using HASHBYTES, have to use the undocumented stored procedure 'pwdencrypt'
SQL Server undocumented password hashing builtins: pwdcompare and pwdencrypt