Excerpt from Microsoft Volume Licensing 2.0

2) Key Management Service (KMS)
The software is activated with a customer hosted service after installation, NOT with Microsoft (i.e. the client connects to an activation server inside the company’s internal network, and this server does not connect to Microsoft). This type of activation is only available to Volume Licensing customers who have at least 25 Vista PCs on their internal network.
However, clients must re-activate by connecting to the corporate network at least every 180 days – if they do not do this, then Vista will only allow them to start the browser for 1 hour per login or to re-activate their software (this is called “Reduced Functionality Mode”).