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In the video, Daniel Holmlund demonstrates creating key files and certificates for encryption and authentication using TLS for secure communication. The process involves setting up encryption and authentication for MQTT, TLS, and HTTPS connections with Mosquitto as the MQTT broker using port 883. Steps for generating certificates and key files are provided, emphasizing the common name parameter consistency and passphrase usage. Finally, the CA, certificate, and key file should be moved to a shared directory for accessibility.
