RSA Security Token

When I saw an RSA Security Token for the first time, I wondered how this small device could ensure enhanced security.I had read about financial institutions using it but didn't exactly know how it works.

The token generates a 6 digit number every min or 30 seconds , on pressing a button and all you need to do is key this passcode along with your password like:

new password= password + token passcode

This form of authentication is known as 2FA i.e. two factor authentication. Now, I kept on wondering, how the server will know this new password as passcode was generated randomly based on an algorithm.The alogorithm in the token basically takes the current time and seed to generate the passcode.The server side also knows the current time and the seed and hence can generate the same passcode and hence be able to authenticate the user.
Now the problem could occur if the time of the server and token is not synchronized.Hence the server opens a 3 minute window and accepts time + or -1 min to the current time.The server also synchronizes with the token based on the offset time x which it can know as we use the token and expects user to input within that offset time.It also accepts passcodes from 2 to 10 minutes but in that case it will ask you to key in the new password again.

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