what is the purpose of a key that goes into the crankshaft pulley and how does it stays in one place?

 

It locks the pulley in place, preventing it from spinning on the crank. Half the key sits in a groove inside the pulley, half sits in a groove on the crankshaft. It's held in place by the pulley & the bolt, it's trapped in that groove once everything is assembled.

They coulda made the crankshaft with something like a flat spot, or something else, but that wouldn't have been as strong.