What does "Reset iCloud Keychain" actually do?

By clicking on resetting keychain means when you enter in user library by clicking on finder and take cursor on top menu bar , click on Go and hold option key click on keychain the old keychain items inside this folder will be deactivated and a new keychain folder be activated and you have to fill up the passwords agin for your websites , login keychain .

But this is to be done when login keychain is corrupted and showing pop ups , otherwise without any reason resetting keychain is not to be applied .

See these articles https://support.apple.com/en-us/HT204085

See the section change iCloud Keychain options in this article https://support.apple.com/en-in/guide/mac-help/change-icloud-feature-settings-mh80b67854f2/10.14/mac/10.14

Also , 

Make sure you have turned on keychain box both iOS device and Mac .

Method to sign in with same apple id and password in Mac and iOS .

A message will appear in iOS your Apple ID is being used to sign in to a Mac book near …location . Two options will be shown allow , do not allow so click on allow .

An apple verification code will appear on iOS , enter this verification code on your Mac book , click on continue .

In your Mac it will prompt to enter admin password , so enter it and click on ok , the circle will rotate in Apple ID field , wait for a while a window will appear the boxes for use iCloud for your documents and data and use find my Mac boxes are checked by default so click on next and click on allow .

Both iOS and Mac are signed in with same Apple ID and password , the approval is completed .

It sounds like you aren't using 2 Factor Authentication. If you are, a verification code will be sent to a trusted devices. That gets you past having to delete the keychain.

Otherwise, you would created a iCloud Security code you can enter. This sounds like where you are. If you can't recall that code and don't have 2FA, you have no choice. This is for your security.

If there was a workaround, I could possibly access your keychain.

As to what happens if you reset the keychain, I believe you lose all save passwords and credit card data, health data, home kit data, plus your messages on the device if you are syncing your messages with iCloud.