The enchanted key is a quest item that is used to locate treasure; it is not used for unlocking things. This key features in the Making History quest. It is also used in the miniquest to locate additional rewards after completing the quest. Once the miniquest is completed, the key dissapears.
The key is first obtained during the Making History quest. After the quest is completed, additional treasures can be located using the key. Once all the treasure has been found, the key will melt. If the key is destroyed before completing all the treasures, another key can be obtained from Erin for 500 coins. This key can be placed on the steel key ring.