Did a bit of research into what pirates are doing... I'm actually really interested to see how people are (or aren't) able to pirate UWP applications, as that says a lot about how locked down the platform really is.
Right now... it sounds pretty bad for the pirates. Sure, the game launches, but it knows that it isn't a legitimate copy. In addition to giving the protagonist an eye patch, the game seems to impose some sort of constant health drain. It aparentally doesn't make the game unplayable, but it does make it pretty annoying. I wouldn't be surprised if the devs pulled some type of Earthbound-style gotcha toward the end.
That said... from what I can tell, there's nothing particularly "clever" about this DRM system (as opposed to something like Denuvo which is —from my standpoint—a legitimately impressive piece of technology). Microsoft is just being super-aggressive about online activation checks. The fact that this works (at least in the short term) isn't news—it's just annoying as heck.