Windows Verification

When you create a Windows bootable USB drive, how does it verify your Windows? For example, if someone was to build a PC without an optical bay, we could 'install' windows from the USB, but wouldn't it ask for a serial number?

I mean why would anyone buy Windows then if they could just get the ISO for free from Microsoft's site and install/boot it manually?

Secondly, after installation from the USB, it is usable? As in, does it ask for the serial number immediately or does it just give the warning "Windows is not verified"?
I don't have any professional experience dealing with your question, so take what I say with a grain of salt:

I'm not sure how Windows 10 does it, but in Win7 there was a certain Windows update whose sole purpose was to check whether or not the copy on the user machine had a legit serial. If you downloaded that certain update and your copy wasn't legit, you would've gotten that oh so familiar black screen. If you excluded the update via certain methods, you wouldn't have had a problem.

I'm not sure about Win8 because my laptop was pre-installed with a legit copy. But I'm fairly sure USB bootables work the same way as partitions in an internal hard drive; they have a specific space for their stuff, and they check legitimacy through that partition where your OS is stored, in where your updates are stored.

I believe this is more relevant to your second question:
http://superuser.com/questions/758057/create-a-bootable-usb-live-stick-that-is-still-useable-on-windows
https://answers.yahoo.com/question/index?qid=20120429160707AAUUDSm
In all the versions of Windows I've worked with, you have a grace period where Windows knows it isn't activated but lets you use it anyway. During that time you are supposed to activate it with a license that you either already have or that it will guide you to purchase. If not, it'll keep warning you of impending doom, and eventually it will refuse to boot anymore.
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@YFGJNG
Oh, so basically no problem as long as Windows is verified (or thinks it's verified ;))
@ LB
Oh, so what actually happens when the grace period expires? What if I just reinsert the USB and boot from there, would the grace period reset itself?
Oh, so what actually happens when the grace period expires? What if I just reinsert the USB and boot from there, would the grace period reset itself?

IIRC it will continue to complain about your install not being genuine and you won't get updates. I believe you can still use it, though.
If the grace period ends, the system will refuse to boot.
If the grace period ends, the system will refuse to boot


I'm curious, if the grace period ends and the system doesn't boot up anymore, I'm still able to go into BIOS and tell the computer to boot up from another source, correct?
Probably, I guess it depends on your BIOS. I don't really know much about that side of computers.
If you can't, tell your motherboard manufacturer they suck.
If the grace period ends, the system will refuse to boot.

Do you have official sources talking about this? I've dealt with non-genuine systems before, and from what I've experienced this was not the behavior. Every computer I've seen without a license key will let you boot, it just won't give you any updates.

EDIT:
This is the only link I can find that really says either way, http://www.howtogeek.com/182847/htg-explains-how-does-windows-activation-work/
Basically, Windows XP would stop booting after 30 or 60 days. Vista and up, you get the behavior I described except you do get critical updates.
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Ah, well I was thinking of Windows XP because I had to install it in VirtualBox, I made the bad assumption that MS was stingy and kept the no-boot behavior in future versions of Windows.
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