The update is tied to the hardware, which in this case my understanding represents parameters contained within the VM file itself (I could be wrong about this, but I believe this is correct).
After the upgrade was complete there is a setting screen within Windows 10 settings that shows activation status. I verified this showed activated after upgrading the VM.
To do a clean install I used the same VM (so all the precieved hardware information is the same), detached the Hard Drive file and then created a new hard drive file (i.e. a blank drive). Then I attached a windows 10 ISO (you can legally download these, I found a link to download it from Microsoft thru Google) to the VMs CD drive and booted the VM. Once it booted I walked through a clean install (skipping all prompts for a registration key).
When complete I checked the activation setting and saw it was confirmed as activated. Windows 10 had recognized this 'system' as one that had a valid upgrade activation and activated the system once it was able to do do via an Internet connection. The only way to get this to work, however is to first go through the.VM upgrade process, as this is the only way Windows will recognize the system during a clean install.
If you were to just download the ISO and create a new VM from scratch, Windows 10 will not recognize the 'system' and won't activate without a registration key.
I found out about the clean install by searching how to do one in reference to a normal PC. The information there holds true for my existing Windows 7 VM, the same as it would for a full PC.
Last edited: Aug 29, 2015