iCloud Keychain is meant to be an easy way to manage passwords on your Apple devices. When password management is easier, using stronger passwords is easier. Since it can be tough to come up with strong, unique passwords, good password managers will generate them for you, and iCloud Keychain in iOS 7 is no exception. Unfortunately, the passwords generated by iCloud Keychain aren't exceptionally strong, but they are better than using the same password for every site. That makes them an okay starting point for people who want a little more security, but don't want full-fledged password manager from the App Store.
Note: Some sites block tools like iCloud Keychain. Sometimes it's for security or privacy reasons (for example, public terminals), other times they're just not compatible. If iCloud Keychain doesn't give you the option to generate a password, it's likely because the site is block those type of features.
If you have specific questions about iOS 7 or OS X Mavericks in general, check out our iOS 7 help and discussion forum or OS X Mavericks help and discussion forum. For more on Safari in specific, check out our ultimate guide: