Posted October 16, 2012
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Method 1) is like Unreal Tournament, which used it as a copy protection, since some (not all) servers only allowed one instance of a CD-key to be connected at the same time. If your server didn't have that restriction, you could have 16 players playing with the same CD-key (fun times at the Computer Lab classes in the university).
Method 2) is like HoMM V, which uses the CD-key as an identifier, akin to your computer's ip address. While you can play single player without problems, if you try to play multiplayer with two or more instances using the same key, the server cannot communicate effectively to any of the players.
So, a CD-key can be used as a copy protection scheme, it can also be used as a network identifier, or it can be used as both. Depending on implementation, a CD-key may no longer be required, in which case GOG.com removes it (see, again, UT).
If you don't mind me asking, what games were you able to play using one cd-key for every player?