At this point, Microsoft has chosen to not give us the details on how this will work, only that it will work.
Details on how it works are not due until Windows 10 is released. Basically, we'll find out when people start the real upgrade, or soon thereafter. Speculation at this point does little good except to provide a bevy of possible misinformation.
I'm satisfied that "it will work." I don't know how it will work.
Kind of like, my 2 year old daughter is satisfied that the lights turn on when she flips the switch. She doesn't know how it works yet, but she's happy it works all the same. Someday she will understand, just like someday we will understand how the "key" works with Windows 10. I can be patient for what is now less than 2 months.