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Authentication is split into four parts:
Authentication mechanisms vs. password schemes
Authentication mechanisms and password schemes are often confused, because they have somewhat similar values. For example there is a PLAIN auth mechanism and PLAIN password scheme. But they mean completely different things.
Authentication mechanism is a client/server protocol. It's about how the client and server talk to each others in order to perform the authentication. Most people use only PLAIN authentication, which basically means that the user and password are sent without any kind of encryption to server. SSL/TLS can then be used to provide the encryption to make PLAIN authentication secure.
Password scheme is about how the password is hashed in your password database. If you use a PLAIN scheme, your passwords are stored in cleartext without any hashing in the password database. A popular password scheme MD5-CRYPT (also commonly used in /etc/shadow) where passwords looks like "$1$oDMXOrCA$plmv4yuMdGhL9xekM.q.I/".
- Plaintext authentication mechanisms work with ALL password schemes.
- Non-plaintext authentication mechanisms require either PLAIN password scheme or a mechanism-specific password scheme.