This file is created when the server is provisioned with cloud-init. For example when you use https://cloud-images.ubuntu.com/ https://cloud-images.ubuntu.com/

This file is created when the server is provisioned with cloud-init. For example when you use https://cloud-images.ubuntu.com/ https://cloud-images.ubuntu.com/ as a template image to create your VM. For these cases you would need to supply cloud-init config via separate means (openstack user-data or just secondary mounted ISO) and cloud-init would perform post-install tasks like configuring users, passwords, ssh keys, etc. If you just install your machine from ISO, cloud-init is not used. I guess that many hosters will use cloud-init for their VPS offerings "under-the-hood". Usually they'll generate password and mail it to you, so obviously ssh password should be allowed for this case.