I would guess it uses a rootkit on a hidden bunch of sectors on the disc or a similarly iffy approach to theoretically encode the disc. The drive will encode a leader to each disc that points to the extra ring of data outside of the normal data area which will hold the decoding code. This is enabled by the USB key and then the software drivers proceed to decode the disc for the OS. This is not a copy protection system, this is an encryption system. And it will not work for DVD-Videos in domestic players. I think.