TOTP is an example of a hash-based message authentication code (HMAC). It combines a secret key with the current timestamp using a cryptographic hash function to generate a one-time password. Because network latency and out-of-sync clocks can result in the password recipient having to try a range of possible times to authenticate against, the timestamp typically increases in 30-second intervals, which thus cuts the potential search space.
Same algorithm is used by Google for Gmail. They also created a app Google Authenticator using the same algorithm.