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I think Each Network Interface Card has unique MAC Address.
All the components in the computer have a ROM which stores the serial number of the product. So the Motherboard etc. have a serial number which can be retrived.

The OS stores all these details during installation and during activation. The serial key is responsible for protectiting software piracy along with the activation which determin the HOME of the OS.

The activation has some threshold limitations.

Windows Product Activation (WPA) checks 10 hardware details
Display Adapter
SCSI Adapter
IDE Adapter (effectively the motherboard)
Network Adapter (NIC) and its MAC Address
RAM Amount Range (i.e., 0-64mb, 64-128mb, etc.)
Processor Type
Processor Serial Number
Hard Drive Device
Hard Drive Volume Serial Number (VSN)
CD-ROM / CD-RW / DVD-ROM

It then calculates and records a number based on the first device of each type that was found during setup, and stores this number on your hard drive. Initially, this is sent to Microsoft in an automatic dial-up, together with the Product ID number derived from the 25-character unique Product Key used in setting up Windows.

The hardware is checked each time Windows boots, to ensure that it is still on the same machine. Also, if you subsequently perform a complete format and reinstall of Windows, Microsoft’s activation center will have to be contacted again because the information held on the machine itself (the number previously written to your hard drive) will have been wiped out by reformatting the hard drive. If your hardware is substantially the same, this will be done by an automated call without your needing to talk to anyone.

What does ‘substantially the same’ mean? WPA asks for ‘votes’ from each of these ten categories: ‘Is the same device still around, or has there never been one?’ Seven Yes votes means all is well — and a NIC, present originally and not changed, counts for three yes votes! Minor cards, like sound cards, don’t come into the mix at all. If you keep the motherboard, with the same amount of RAM and processor, and an always present cheap NIC (available for $10 or less), you can change everything else as much as you like.

If you change the device in any category, you have lost that Yes vote — but will not lose it any more thereafter if you make changes in that category again. So, for example, you can install a new video display card every month for as long as you like.

Note that it appears that if you boot with a device disabled (disabled — not removed), the device is not found in the enumeration — so if, say, you disable a network connection which uses the NIC and then reboot, you may be missing its three votes and find that a new activation is needed. If you are doing such things, take the Hint 3 in What about formatting a hard disk? below, and restore the files concerned once the NIC is back in service.

What if I make too many changes?

If, on Windows startup, there are not the required seven Yes votes, the system will, in the original version of Windows XP, only boot to Safe Mode. You will be required to reactivate by a phone call to Microsoft. You will have to write down a 50-digit number, call into the activation center on a toll-free number that will be given to you, read and check back the number you recorded — and explain the circumstances. In exchange, you will be given a 42-digit number to type in. This will reactivate your copy of Windows.

This is made easier if Windows XP Service Pack 1 has been installed: The system will continue to boot normally for three days, during which time you will be able to contact the activation center via the net. If the extra changes have been removed, or if 120 days have passed since the original activation, you will be able to use the automatic process once more

What about formatting a hard disk?

Two things are recorded for disks: the number of the disk drive itself, and the Volume Serial Number (VSN) of the partition on it.

HINT No. 1: The VSN is part of the data in the partition’s first sector, so it is changed when you reformat the drive. It is worth getting the freeware utility Volume ID to restore the original VSN. Before you reformat, run VOL from a Command Prompt, note the VSN (e.g., 1F2E-3C4B) in the second line. Then, after the reformat and new Windows XP installation, defer the new activation until you have run Volume ID to restore the old VSN, and rebooted. This is not essential — but it saves one of the ‘Yes votes’ against any future hardware change. (If you don’t wish to run this utility, the next best way to obtain the same result would be to delete the old Win XP files from the hard drive before reinstalling, rather than actually reformatting.)

HINT No. 2: Another thing that changes the VSN is converting a FAT 32 partition to NTFS. So, if you upgrade a system using FAT 32 to Windows XP and intend to convert to NTFS, do the conversion before activating the system. Remember, you can wait a while: you have 30 days before you need to activate. The machine’s hardware at the time of the first activation is what counts. Or, if you have already activated, use Volume ID as described in Hint No. 1. If you are doing this after activation, also first back up the WPA.DBL and WPA.BAK files, as described in Hint No. 3 below, and, after completion of the conversion, restore these files and reboot again.

HINT No. 3: It is valuable to back up the two files WPA.DBL and WPA.BAK from the Windows\System32 folder.Then, should they get damaged, or should you do a ‘Repair’ reinstallation of Win XP, these files can be copied back to restore the prior activation status. However, this only works in those limited circumstances. The contents of these two files is matched to the specific Windows setup; therefore, contrary to what many journalists and members of the user community have written in recent months, restoring these files will not restore your activation status following a reformat and clean install.

The disk drive and partition recorded will be the ones that the system has found first when doing the initial activation: normally the one from which the system booted. So, if you change that disk and reinstall Windows to a new partition, you have lost two of the Yes votes. If, though, you add a new hard disk, copy the original partition onto it with an imaging program, and retain the original hard drive as a secondary data disk, it will still be found by a later check. This is because it searches for all disks, and the vote will be Yes in both categories if it finds the original one, with the partition not reformatted.

If you change the harddisk, yes you can reinstall the OS.