I don't have an answer, probably because I don't entirely understand what you are trying to do. But I do have some comments. You might find more expertise in the
Unix Forum
Firstly, Terminal has nothing to do with this. Terminal is just an application that allows you to interact with a Unix shell. It has no responsibility for the commands you enter. The issue is with ssh.
Secondly, if I understand your situation, you are at your Mac, attempting to login to a remote machine? In that case you are not (or should not be) accepting a "key coming from another machine". The key should be on the Mac. The remote machine should have a copy of the public key associated with the private key on the Mac. The private key should be on the Mac, and
no where else.
Thirdly, I am puzzled by your quote from the ssh-keygen man page. Mine says
-b bits
Specifies the number of bits in the key to create. Minimum is
512 bits. Generally, 1024 bits is considered sufficient. The
default is 1024 bits.
What version of ssh do you have?
ssh -V