Ignition key USB question

Okay so many software now (in my case music and video apps) use ignition USB keys. Without the key plugged in, the software is unusable (thats obviously a generalization dont flame me.)

Anyways, my question is PURELY out of curiousness, I dont plan on doing anything illegal, Ive always loved taking things apart and figuring out how it works. Im semi new to programming (not computers) but deep programming code intrigues me,

So my first question is this:
1. how does it work? just it just tell the computer "yes im here" or is there a code that bounces back and forth between the key and the CPU to verify its legit.
2. if so, how is that encrypted code generated and where is it stored?
3. is there some way you can just copy every single bit, bit for bit, from the ignition key, onto another USB key and make an exact duplicate?
perhaps in some bootable DOS program? Would that work? and if not, why?
4. under normal circumstance, briefly explains (without too much detail, like i said im not trying to do anything illegal.) how people generally crack ignition keys, what is the way they go about doing that? THanks.
5. is there some way to create a virutal key based off the physical one (similar to a daemon tools sort of thing)?

I swear this is a curiosity question.

THANKS in advance any insight is appreciated. Even if I wanted to Im WAY to noob to crack anything, but I really enjoy learning about how the world around me works.

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More about ignition question
  1. You are referring to a USB Dongle. They are not simple memory devices, therefor they are not something that can be easily copied. Try reading this Wikipedia article for a start.
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