This authentication method is also based on the principle of Time Based One Time Password (TOTP). In this 2FA method, the user receives an OTP on the registered email address and the user has to enter the OTP to log into the application. The OTP is time-based i.e. it is valid for only a certain period of time. Once it expires, the user can not use it to get access to the application, the user has to request a new OTP.
For using OTP Over Email as an authentication method, you have to configure the outgoing mail server on your Atlassian instance.