To sum up:
Wordpress and others are using phpass to authenticate (http://www.openwall.com/phpass/), it is basically a salted md5 hash. Basically, after the process, a hash like this is obtained.
$P$BiWISc3IsqRHxeEjq4VJP1Vi8gy4mg1 (for test123 password)
I would like to know if dovecot would be able to read this,
It can't. But if you're using Openwall, apparently its crypt() supports this and Dovecot doesn't need to. Unfortunately, that stuff isn't include in any major distribution, had to look on the other options
I could still make a custom checkpassword function but that would be non-optimal. I created a checkpass script to verify the passwords. For anyone looking for this, I got some good information here:
.- Implementation of custom checkpassword in perl, with a sample testing script: http://wiki.qpsmtpd.org/plugins:auth:authcheckpassword
.- Phpass implementation for perl http://search.cpan.org/~zefram/Authen-Passphrase/lib/Authen/Passphrase/PHPas...
For the dovecot part, just add in the passdb section from dovecot.conf this:
passdb checkpassword { args = /etc/dovecot/checkpassword.pl }