A vendég kezében van a kulcs.

Word by word:

• A – the (definite article, used before consonant)
• vendég – guest
• kezében – literally in his/her hand (more precisely: in the hand (that belongs to him/her))
  • kéz – hand
  • -e – 3rd‑person possessive suffix (his/her/its hand)
  • -ben – inessive case ending (in, inside)
• van – is (3rd person singular of lenni – to be)
• a – the
• kulcs – key

So the structure is something like:
The guest hand-in is the key. → The key is in the guest’s hand.

Hungarian normally uses case endings instead of separate prepositions for many spatial relations.

• English: in the hand
• Hungarian: the noun kéz
  • inessive suffix -ben → kézben = in (a) hand

In our sentence, the hand also has an owner (the guest), so we add a possessive suffix:

• kéz (hand)