The email claims it recorded your webcam via an RDP (remote desktop) connection, then uses a REAL password you have actually used in the past. Check out the blog post to learn how this all works.
Since July 2018, I have received 71 of these kinds of extortion spams. Each time I get one, I report it to the FBI’s Internet Crime Complaint Center (IC3) at https://www.ic3.gov
Yes, these emails are very disturbing. We sometimes get worried emails to our helpdesk about these types of scams. We always explain to the person that it’s just a mass email and there is nothing to worry about.
These are generally fake and the passwords are simply from when a site was compromised and a past password leaked. I just delete them when I get them as spam to my webmaster account.