KMS stands for Key Management Service. It is a service used by Microsoft to activate software products, primarily Windows and Office. KMS works by allowing organizations to activate multiple copies of Microsoft products using a single activation key, thus simplifying the management of licenses. When a KMS client connects to a KMS host, it sends a request for activation, and the host responds, validating and activating the product if the criteria are met. This system is beneficial for enterprises with a large number of installations, as it reduces the need for individual activations.