Also called a "dongle," it is a software copy protection device that plugs into the USB port of the computer. Upon startup, the application looks for the key and will run only if the key contains the appropriate code. Typically used for expensive software, hardware keys offer very effective copy protection because they cannot be easily duplicated.
Earlier Keys Dangled
The first hardware keys plugged into the serial or parallel ports. Because there was only one serial and one parallel port on the computer, the key acted as a pass-through so that other keys and peripheral devices could connect. In fact, the nickname "dongle" was derived from multiple hardware keys "dangling" off the port. See DMCA
An Earlier Parallel Key
Earlier parallel port keys provided a pass-through so that additional keys or devices could be plugged in. The photo (top) shows the electronics inside. (Top image courtesy of SafeNet, Inc., www.safenet-inc.com)