For example a company could have 500 employees and 75 licenses for a piece of software. The license server could allow anyone of the 500 employees to use the software on their computer, as long as no more than 75 instances of the software are running at the same time.
Having the license server on premises means that Internet outages do not make the customer unable to use the software. (In the case of people physically in the office I mean. People who work remotely would of course still be at the mercy of having a working internet connection.)
At the same time, the customer can firewall off the license server so that it cannot speak to the outside. Combined with firewall rules for the user machines, the customer can know that the software does not report any sensitive data to the vendor.
That’s my point of view on the matter anyways.