Passfilt.dll is Microsoft's implementation of a password filter.
When a Password Modify Operation is made, the Local Security Authority (LSA) calls the AD Password Filters registered on the system. Each AD Password Filters is called twice:
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Password change notification can be used to synchronize password changes to foreign Credential Data Stores.
AD Password Filters are used to enforce Password Policy. Filters validate new passwords and indicate whether the new password conforms to the implemented password policy.
The following topics provide more information about password filters: