This is a clever plugin. I wasn't sure what it did at first, but it's pretty simple. What this plugin does is bypass the default Login button. You must drag or create a sort of 'dongle' bookmark to replace the default Login button per the instructions after you activate the plugin.
So once you've filled out your username, password, captcha if applicable, you must use the 'dongle' instead of the Login button to login. Otherwise you get the warning message you set up.
So not only does someone need the 'dongle', they also need the Response to the Challenge.