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>I've seen those examples of using the identity tag with the userPrincipleName, but I just don't get that. WTF is username@domain.com supposed to be in real life? I haven't a clue.

When you created the domain in Active Directory, you have to specify a domain name. That's what "domain.com" is supposed to be. "username" is your user name that you use to log into the domain with.