When you upgrade over an existing, activated copy of Windows 7 or Windows 8.1, the Setup program checks the current activation status. If it determines the installation is properly activated, it contacts the Microsoft Store and generates a license certificate that is linked to that hardware. (A Microsoft Account is not required for this step.)
This automatic activation process is identical whether you use an ISO file to start the upgrade or do so from the downloaded upgrade files.
After that first activation is complete, you can perform a clean install on that same hardware using an ISO file, which has a product key embedded in it. As long as the hardware matches the previous installation ID, the installation is activated automatically. (Microsoft does not provide details of what goes into the hardware ID, except to confirm that it does not contain any personally identifiable information and is not used for tracking purposes.)
