No, it means it won't activate if the version you install is not the version the licence key matches. This is the case between say, home premium and ultimate ed'. Not so sure about between 32 or 64 bit though, but I would imagine it's the same issue.
A tip - if you activate windows on one machine, it will not activate if reinstalled again, especially if it's OEM software. BUT - if you phone the toll free number you get when it fails, you go through an automated process, select the options that you only have it on one PC and that the reason is that the mobo needed replacing or something and they will give you an unlock code.
All my experience of this is with XP/Vista though, With Win7 there was talk of this changing and being a bit more lenient. eg I heard they were releasing a 3 user home licence similar to Office for home use. Anybody know?