This directive accepts a 16 byte AES key and informs the compiler to encrypt the binary image.
$AESKEY accepts 16 parameters. These are the 16 bytes which form a 128 bit key.
When your code is compiled, the resulting binary code will be encrypted with the provided key.
A boot loader could then use AES and decrypt the binary file before writing to flash memory.
Only the binary image is encrypted, the HEX file is not encrypted!
You can not simulate an encrypted program. Add this option when your project is ready.
See the Samples\boot\xmega_dos_boot_AES.zip , an Xmega boot loader with AES decryption.