Good work, sounds like you did a lot of thinking figuring this out. In regards to your question, key indexing is used to mark the location of the stored key. Most access points have room for four keys which can be edited from the web interface.
This is from the Intel security guide:
Key indexes can also be selected using the -i option in aircrack (cuts the cracking time by three quarters, if you get it right.) Otherwise aircrack will churn through all four indexes before finding the right key (if you are unlucky).Under 802.11, a wireless station can be configured with up to four keys (the key index values are 1, 2, 3, and 4). When an access point or a wireless station transmits an encrypted message using a key that is stored in a specific key index, the transmitted message indicates the key index that was used to encrypt the message body. The receiving access point or wireless station can then retrieve the key that is stored at the key index and use it to decode the encrypted message body.
Thanks for the iwconfig option tip, btw, very helpful.