There are several password-based authentication methods. These methods operate similarly but differ in how the users' passwords are stored on the server and how the password provided by a client is sent across the connection.
scram-sha-256
            The method scram-sha-256 performs SCRAM-SHA-256
            authentication, as described in
            RFC 7677. It
            is a challenge-response scheme that prevents password sniffing on
            untrusted connections and supports storing passwords on the server in a
            cryptographically hashed form that is thought to be secure.
          
This is the most secure of the currently provided methods, but it is not supported by older client libraries.
md5
            The method md5 uses a custom less secure challenge-response
            mechanism. It prevents password sniffing and avoids storing passwords
            on the server in plain text but provides no protection if an attacker
            manages to steal the password hash from the server. Also, the MD5 hash
            algorithm is nowadays no longer considered secure against determined
            attacks.
          
            The md5 method cannot be used with
            the db_user_namespace
            feature.
          
            To ease transition from the md5 method to the newer
            SCRAM method, if md5 is specified as a method
            in pg_hba.conf but the user's password on the
            server is encrypted for SCRAM (see below), then SCRAM-based
            authentication will automatically be chosen instead.
          
password
            The method password sends the password in clear-text and is
            therefore vulnerable to password “sniffing” attacks.
            It should
            always be avoided if possible. If the connection is protected by SSL
            encryption then password can be used safely, though.
            (Though SSL certificate authentication might be a better choice if one
            is depending on using SSL).
          
      PostgreSQL database passwords are
      separate from operating system user passwords. The password for
      each database user is stored in the pg_authid system
      catalog. Passwords can be managed with the SQL commands
      CREATE ROLE
      and
      ALTER ROLE,
      e.g., CREATE ROLE foo WITH LOGIN PASSWORD 'secret',
      or the psql
      command \password.
      If no password has been set up for a user, the stored password
      is null and password authentication will always fail for that user.
    
      The availability of the different password-based authentication methods
      depends on how a user's password on the server is encrypted (or hashed,
      more accurately). This is controlled by the configuration
      parameter password_encryption at
      the time the
      password is set. If a password was encrypted using
      the scram-sha-256 setting, then it can be used for the
      authentication methods scram-sha-256
      and password (but password transmission will be in
      plain text in the latter case). The authentication method
      specification md5 will automatically switch to using
      the scram-sha-256 method in this case, as explained
      above, so it will also work. If a password was encrypted using
      the md5 setting, then it can be used only for
      the md5 and password authentication
      method specifications (again, with the password transmitted in plain text
      in the latter case). (Previous PostgreSQL releases supported storing the
      password on the server in plain text. This is no longer possible.) To
      check the currently stored password hashes, see the system
      catalog pg_authid.
    
      To upgrade an existing installation from md5
      to scram-sha-256, after having ensured that all client
      libraries in use are new enough to support SCRAM,
      set password_encryption = 'scram-sha-256'
      in postgresql.conf, make all users set new passwords,
      and change the authentication method specifications
      in pg_hba.conf to scram-sha-256.