Macrium Reflect?

I happened to stumble upon Macrium Reflect the other day, which caught my eye—mostly because a friend of mine recently ran into a situation where his Windows 7 system simply wouldn't boot, and he ended up losing everything.
To ensure I don't find myself in a similar predicament, I've been looking into testing this software out, though I have a few lingering questions:
On this link, it mentions this:
"It supports to make Windows PE based on local Windows pre-installation environment or based on downloaded Windows 10 WIM image file"
What exactly does it mean by "or based on downloaded Windows 10 WIM image file"
?
From what I can gather as a layman, it sounds like it might download Windows 10 itself, but how would that even work? Since those aren't exactly free, I guess...

... ever since Windows 10 dropped, you can basically grab it for free and it runs totally fine (even if there are some minor hiccups), but you’re still gonna need to hunt down an activation "key," like something you'd pick up on eBay.

I don't get it... you're saying they're free, but then you say you have to go buy some "code" on Amazon just to activate them?
What's even the point of an activation if the thing works fine without it anyway?