From a technical perspective, product activation usually means combining a product key or serial number with unique information about a computer and sending that data to the software maker over the Internet. This helps prove that the product key or serial number being used is not pirated and that the software is being used on an appropriate number of computers... usually one.
Depending on the software or operating system, choosing not to activate might prevent the software from running, reduce the functionality of the software, cause regular (annoying) reminders, or may not have any effect at all.

