The PVK works by checking the device's motherboard for the keys meant to correspond to the OS build. If the two don't match, it will seriously limit the device's capabilities. Specifically, you won't be able to use Zune, Xbox, the Marketplace, or any other cloud service. This will be a serious deterrent to developers building custom ROMs for their WP7 devices.
Before you get too mad, know that Microsoft doesn't build these privacy keys to hamper your customization. They are primarily meant to prevent piracy. Then again, in typical Microsoft fashion, they are probably happy to tighten the reins on their products.
These security measures will present a challenge to developers, but that might not be a bad thing. Isn't the challenge part of the fun? Consider the T-Mobile G2, that was initially deemed 'unrootable.' With a little elbow grease, the G2 is now officially rooted, and the development community can post a point in their win column. Good luck, WP7 developers!