It's a goofy system, but it's supposed to work by giving that key to the other pc and they can join in theory anyways. Without the key no one can join the workgroup. It is good to create one though so you generate a key.
You don't have to create a homegroup/workgroup. On the Windows Ultimate machine do the same, but be sure it is enabled, set to automatic and started. On the Windows 7 home machine go to start and type services.msc (enter) & look for Computer Browser and stop the service and disable it. Also be sure to set advanced works discovery on, network sharing are on, Public sharing on/off, 128 encryption on, Login on/off. Under Control Panel\Network and Internet\HomeGroup Do that on both systems. If you joined or created a workgroup on each pc you should leave them. Both machines must match and be on the same workgroup name.
Both machines on same workgroup? Windows key+pause break.
