|YubiKey is an innovative hardware authentication device developed and sold by Yubico. To the user, it looks like a small, thin, disk-on-key with a button on top. To Password Safe, it functions as an authentication token, providing strong physical security to the password database.|
Obviously, you need a YubiKey device to start. YubiKeys can be purchased online from here. Note that Password Safe requires YubiKeys with firmware version 2.2 and above.
Your YubiKey needs to be configured properly in order to work with Password Safe. This is done via the Manage->Yubikey... dialog box as described in the Manage Menu Section.
If you already have a YubiKey, note that Password Safe uses slot #2 for authentication, leaving slot #1 for other applications.