I've used a number of different products that do the license generation and have created my own solution but it comes down to what will give you the most flexibility now and down the road.
Topics that you should focus on for generating your own license keys are...
HEX formating, elliptic curve cryptography, and any of the algorithms for encryption such as AES/Rijndael, DES, Blowfish, etc. These are great for creating license keys.
Of course it isn't enough to have a key you also need to associate it to a product and program the application to lock down based on a key system you've created.
I have messed around with creating my own solution but in the end when it came down to making money with the software I had to cave and get a commercial solution that would save me time in generating keys and managing my product line...
My favorite so far has been License Vault from SpearmanTech but I've also tried FlexNet (costly), XHEO (way too much programming required), and SeriousBit Ellipter.
I chose the License Vault product in the end because I would get it for much cheaper than the others and it simply had more to offer me as we do most of our work in .NET 3.5.
