Different licences mean different things:
Full Retail licence: This means windows can be re-installed as many times as one likes on any machine as long as it's running on one machine only. After 5 installs activation will require the phone method.
OEM Licence: This means the licence is tied to one machine and one machine only (usually the motherboard is considered 'the machine' in this respect). It doesn't matter how many times it's re-installed as long as it's on that same machine and as long no hardware is changed then activation remains automatic even after 5 installs.
Users have noted that if the motherboard requires changing due to a fault then the activation key becomes invalid as the new motherboard is 'seen' by the os as...