Used games can be bought and sold for it, but there is still the activation fee.
It's basically a system wide online pass, and only tied to 1 account, not a console.
Example: I bought Halo 5 and didn't like it. Traded it to Gamestop. Someone buys my copy from Gamestop and brings it home. At the installation screen, this person is prompted to pay x dollars for the pass/license. After paying, the game is installed. Only that user can play my old copy of Halo 5 freely; if his brother/sister wants to play it, even on the same system, he or she must pay another activation fee.
Oh, and you can't install it unless you are online. And even after installing, if you haven't signed into Live in the last 24 hours, you can't play it or anything else without reconnecting. Huzzah!