please answer this question with explaination. I have a hard time understanding it

13.2 (12.2) Design a finite-state machine that meets the following specifications The keypad only has the digits 0 and 1, and an "enter" key. The user types in his password, then hits "enter" For each digit the user types, display a . The user's password is 01 If the user enters the password correctly, display "In!" If the user enters the password incorrectly, display "Out!" and accept no more input