With the release of Windows 10 Build 10565 to Fast Ring Windows Insiders, Microsoft has simplified the activation process on Windows 7/8/8.1 systems that are being upgraded to Windows 10 using the free upgrade offer.
Honestly, this is should have been enabled from day 1 of Windows 10's availability.
By now we all know that Microsoft has been using a digital entitlement to activate systems running Windows 7 or 8.1 when they are upgraded to Windows 10 for free.
That digital entitlement did not require a product key for Windows 10 because it used the genuine/activated install of Windows 7/8.1 to create a digital signature based on the system hardware that would in turn activate Windows 10 after the upgrade. After this digital entitlement was created Windows 10 could be clean installed at no cost for the life of the device without ever having to reinstall the previous version of Windows.
Of course, this was not made clear by Microsoft when Windows 10 was first released and so there was a lot of speculation on how the entire process actually worked early on.
Past upgrades to Windows were able to verify the eligibility for an upgrade by using the Windows product key during the setup process but this was not possible with Windows 10.
That is until now.
Here is the explanation directly from Microsoft on this now being enabled in Windows 10 Build 10565:
"We have received a lot of feedback from Insiders on making it easier to activate Windows 10 on devices that take advantage of the free upgrade offer to genuine Windows by using existing Windows 7, Windows 8 or Windows 8.1 product keys. If you install this build of the Windows 10 Insider Preview on a PC and it doesn’t automatically activate, you can enter the product key from Windows 7, Windows 8 or Windows 8.1 used to activate the prior Windows version on the same device to activate Windows 10 by going to Settings > Update & security > Activation and selecting Change Product Key. If you do a clean install of Windows 10 by booting off the media, you can also enter the product key from prior Windows versions on qualifying devices during setup."
One key phrase I pick up from this paragraph is on the same device. I believe this is there to cover OEM licenses as they are hardware locked.Retail Windows 7/8.1 product keys can be moved between systems as long as the OS is no longer in use on the previous device.
As for the qualifying devices that are referenced when it comes to clean installs, I believe that means an OEM product key could be used for a clean install of Windows on that same hardware because that would be the qualifying device.
Of course, licensing is the murkiest subject of all as we have seen on SuperSite for Windows since before Windows 10 was released so I have reached out for clarity on these terms and will update this post if I learn anything else.