When I purchased the flywheel key, it had two small indentions in one side kind of like from a puch or something. Is this normal, or did i get a defective key?
I believe key is made that way. Should add just enough extra width that the key will not fall out of the slot during installation. The key is nothing more than a timing alignment device. If your flywheel taper and crank mating surfaces are stained/rusted at all, you might want to lap the flywheel for the "perfect" fit before installing it.
Not unusual to get rust or stains on the flywheel/crank mating surface. This can upset the interference fit between the two. Get some automotive valve lapping compoung. Remove flywheel and key. Apply compound to the crank where the flywheel rides. Put flywheel on and rotate it back and forth by hand. The compound will lightly polish both surfaces for a perfect mating surface. Check to be sure both surfaces are shiny. Clean thoroughly and install key and flywheel-retorque.