You have something of an explanation there for the passwords creation itself, but it’s a bit unclear what happens when one fails. I understand if you fail the day-to-day password three times, you’ll be able to reset it with the master password (which is why NK proposes to keep a short pass for day-to-day : it will be burnt straight after 3 attempts).
On the other hand I don’t really know the process if you fail the master pass three times : I understand you only can reset the whole key, and I also understand that a third party dismounting the key to access the memory will just get a strongly encrypted volume, which we consider is not decipherable…
Another helpful link : User PIN / Admin PIN explanation?