What happens is that automatic activation would fail and once in windows you have to try activating again but telling it to use the phone method. You call and give them a code that is 6 numbers x 9 fields long. After a little time they will give you a activation code of the same length. The license will then be attached to the current system.
Note: I have had to do this the last couple times I re-installed Windows 7 due to upgrading to SSHD's and I have the family upgrade retail pack.