Using a USB drive as a physical key

When a password gets so long that you can't remember it, it almost becomes like a physical key, and anywhere you store that file becomes a copy of that key.

Imagine now that you stored this key in one place only; on an encrypted USB drive.

I know this technology exists already, because I know I've heard people talk about it. How can I get into using this type of physical key practically, and what can I use it for?