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The license server works in the same way as FlexNet/FLEXlm. It serves licenses by listening on a specific TCP port and allowing you to check out licenses for network use or for borrowing, if enabled by your application vendor. Additionally, the server uses UDP for automatic server discovery. This enables applications to find the server without specifying a hostname.
See How to install Installing a license server on Windows to walk through an example of setting up a Windows license server and checking that it is running normally.