Cubase Elements (including AI and LE) can run using an e-license and the free PACE/iLok License Manager program (but see below for additional details).
Any version beyond Elements/AI/LE must use a physical iLok dongle.
Regarding the PACE/iLok License Manager, once you've got that installed and running (assuming you're using the Elements, AI, or LE version), you may occasionally get an error message when starting up Cubase-- I forget the exact message, but I think it recommends re-installing the License Manager, which actually doesn't help at all (at least, not in my case).
What the real problem is (at least whenever it happens to me) is that the PACE License Services aren't running.
To correct this, you must open up the Windows Control Panel, go to Administrative Tools, select Services, and look to see if the entry for PACE License Services says "Running" or not. If not, right-click on the entry and select "Start."
If this keeps happening from time to time, chances are the service is having trouble starting up during the boot process due to too many things trying to start up at once. In that case, go back to the entry, right-click on it and select "Properties," and change its "Startup type" property from "Automatic" to "Automatic (Delayed Start)." That did the trick for me!