Some of those systems from back in the eighties used physically damaged sectors. If the sector was readable the program aborted. So if you attempted to copy the program to a good disk, it would no longer work, even with a bit to bit copy.
I once was fortunate enough to have a floppy with a bad sector on the same track and head as one of those copy protected disks. I used it as a target to copy one of those copy protected disks to. I used a low level sector editor to copy the disk and it worked. It was the only copy anyone could get to work.
I have considered that remapping of bad sectors could have something to do with the DMS key. If all Phatnoise drives have a certain sector remapped by design, and the Phatbox code knew how to access the original source sector, then that would be a neat trick to hide some data.