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Microsoft codenames are the codenames given by Microsoft to products it has in development, before these products are given the names by which they appear on store shelves. Many of these products (new versions of Windows in particular) are of major significance to the IT community, and so the terms are often widely used in discussions prior to the official release. Microsoft usually does not announce a final name until shortly before the product is publicly available.
There has been some suggestion that Microsoft may move towards defining the real name of their upcoming products earlier in the product development lifecycle so as to avoid needing product codenames.
In Microsoft jargon, the "toaster" is the hardware equivalent of fictional entities, such as the Contoso company or the http://tempuri.org/ URI, used in documentation and sample code as placeholders to be redefined by third-party developers.
The convention of calling "toaster" a fictional hardware device is by no means exclusive to Microsoft, but Microsoft formalizes the concept to an unprecedented level: the "toaster" is prominently featured in the Driver Development Kit (DDK), as a fictional hardware device that performs no function but is extremely complex. The "toaster" is removable, plugged in a dedicated bus, it has hotplug support, power management, a customized driver installation procedure, and even UPS functionality. Its device driver implements all the required APIs but no other function, and it's released as a sample "skeleton" driver for developers of actual hardware devices.