The key to using this key is a couple of things: 1: Put it on your cursor, 2: take off any levitation, 3: duck if you human or taller (I duck even as a Wood Elf sometimes), 4: Use the U key instead of mouse clicking.
When you do all 4, it usually works without a hitch.
He's part of a quest named "The Search for the Ultimate Story" which i think enables you to enter Meldrath's Majestic Mansion.
In order to complete the 2nd step of this quest you have to use the 1st bit (Clockwork Key) you get from minotaurs in DSH on the door of King Ak'Anon's little house (NE of DSH, close of Steamfont zone in). You'll be able to chat with him and complete the second step after giving him the so called key and hail him again to get a new Key (Clockwork Seal of Ak'Anon).
Saying "Leave" to him is a way to get out his house once you've handed the Clockwork key !
For information, 2nd bit of the quest is called : Find out what the key guards.