OK so how license worked in vSphere 4 was straightforward: licenses were bought on a per CPU socket and you could run unlimited virtual machines (VMs) on the host until it crashed and burned (if you desired).
Things have changed in vSphere 5.0, whilst still working on a per socket basis, licenses also now come with a set amount of virtual RAM or vRam that can be allocated to VMs.
This could result in a customer to spend additional unnecessary dollars in additional licenses to be compliant with new vSphere 5 licensing scheme. If the customer buys hosts that can hold a large amount of RAM, these licenses costs can start to prove very costly.
To quote VMware from their white paper on the matter.
"VMware vSphere 5 is licensed on a per-processor basis with a vRAM entitlement. Each VMware vSphere 5 processor license comes with an entitlement to a certain amount of vRAM capacity, or memory configured to virtual machines. Unlike in vSphere 4.x where core and physical RAM entitlements are tied to a server and cannot be shared among multiple hosts, the vRAM entitlements of vSphere 5 licenses are pooled, i.e. aggregated, across all vSphere servers managed by a vCenter Server instance or multiple vCenter Servers instances in Linked Mode"
More information on the licensing scheme can be found on VMWare’s website @ http://www.vmware.com/files/pdf/vsphere_pricing.pdf
