How do you properly install canvas keys? As we discovered in What are the little pieces of wood that come with pre-made canvas for? those wood pieces are called canvas keys. 

One of the answers links to a site that covers installing them. I don't get how they are working since it states I am supposed to put them in the mitre slots of the canvas. Would that not break the frame?

Information seems to suggest that canvas keys only have a place for cheaply manufactured frames. Is there something wrong using them on more expensive frames? Do they get used on larger frames as well (ones that are more than 20ft square)?

What are the conditions that would make you want to install canvas keys? How do you install canvas keys properly?
Canvas keys work by expanding the mitre joints at the corners of stretcher bars (see sketch below). As the canvas keys are driven into their recessed slots on the stretcher bars the canvas, which is fastened to the stretcher bars, slowly tightens.

This action "depends" on the mitre joint of the stretcher bars not having been nailed or stapled together.

If the joint is glued, nailed, stapled or rigidly fastened then installing canvas keys will not be able to do their job. Actually, as you point out, driving canvas keys into stretcher bars that have been nailed will break the bars.

Note, once you nail the mitre joint closed you no longer have a stretch, you now have what is called a canvas strainer.

Large painting canvases, ones with cross members, are more the strainer then stretcher variety. 

The benefit of a strainer is you have a large ridge frame onto which to fasten your canvas. Large canvases shrink quite a bit as you work with them. So a rigid strong support is required.