How Do Hardware Token Devices work?

This has very little to do with hash functions. A cryptographic hash function may be part of the implementation, but it's not required.

Actually, it generates the digits on a time-based interval, if I press the button for it to generate the digits, it generates the digits and after about 25 seconds, and I press it again, the digits change not when I press it again immediately after I'd just pressed it.

There's your hint. It's a time based pseudo-random or cryptographic algorithm. Based on the time, there is a code. The dongle and the server know – or rather, can compute – the code for every window. This is a shared secret - the dongle does not connect to a remote server. The server will probably allow one or two of the most recent secret keys, to prevent the situation where you enter a key that has just expired while the transmission was en route.

(Although my recent experience with Amazon Web Service multi-factor authentication has definitely resulted in login failures within 5 seconds of a code being displayed to me. In other words, some vendors are very strict with their timing windows. As always, it's a trade-off between security and usability.)

The abbreviations CodesInChaos mention are Time-based One-Time Password (TOTP) and HMAC-based One-Time Password (HOTP), two algorithms commonly used in two-factor authentication.

Wikipedia has this to say about the RSA SecurID, a particular brand of two-factor-authentication dongle.

The RSA SecurID authentication mechanism consists of a "token" — either hardware (e.g. a USB dongle) or software (a soft token) — which is assigned to a computer user and which generates an authentication code at fixed intervals (usually 60 seconds) using a built-in clock and the card's factory-encoded random key (known as the "seed"). The seed is different for each token, and is loaded into the corresponding RSA SecurID server (RSA Authentication Manager, formerly ACE/Server) as the tokens are purchased.

I chose this article because it has a reasonable, physical description; the higher-level articles focus on the theoretical over the physical implementation.

The article also confirms that you need to keep the secrecy of the token, or someone else can impersonate your logins by knowing what the codes are as easily as you do.

The token hardware is designed to be tamper-resistant to deter reverse engineering. When software implementations of the same algorithm ("software tokens") appeared on the market, public code has been developed by the security community allowing a user to emulate RSA SecurID in software, but only if they have access to a current RSA SecurID code, and the original 64-bit RSA SecurID seed file introduced to the server.

However, since the verifying server has to have foreknowledge of the tokens, the two-factor secrets are vulnerable to attacks on the source as well. SecurID was the victim of a high-profile theft that targeted their own servers and eventually led to secondary incursions on their clients' servers as well.

Finally, there is more information available on the security.stackexchange sister-site under the multi-factor tag, and also on this site under the two-factor-authentication tag.