If you have ever read the EULA of the Windows 7 during the installation ( I bet nobody does), it is noted inside.
For whom may get interested of the EULA, you can find them in the folder in your Windows 7 folder.
In the license terms for HomePremium (which I am using), skip to section 3.d
Use with Virtualization Technologies. Instead of using the software directly on the licensed computer, you may install and use the software within only one virtual (or otherwise emulated) hardware system on the licensed computer. When used in a virtualized environment, content protected by digital rights management technology, BitLocker or any full volume disk drive encryption technology may not be as secure as protected content not in a virtualized environment. You should comply with all domestic and international laws that apply to such protected content.
It means, you can have a free additional instance of Windows 7 running a Virtual PC / VMWare / etc inside your machine.
How about it on other Editions of Windows 7?
You can also find the similar statement in Windows Vista EULA.
Vista Home Basic and Home Premium
4. USE WITH VIRTUALIZATION TECHNOLOGIES. You may not use the software installed on the licensed device within a virtual (or otherwise emulated) hardware system
6. USE WITH VIRTUALIZATION TECHNOLOGIES. You may use the software installed on the licensed device within a virtual (or otherwise emulated) hardware system on the licensed device. If you do so, you may not play or access content or use applications protected by any Microsoft digital, information or enterprise rights management technology or other Microsoft rights management services or use BitLocker. We advise against playing or accessing content or using applications protected by other digital, information or enterprise rights management technology or other rights management services or using full volume disk drive encryption.
via Virtual PC 2007 Beta: Free and Available Now - Windows Vista Team Blog - The Windows Blog.