The short answer: The Licensing Reality
You thought you installed "Windows 7 Enterprise," but you actually installed "Windows 7 Ultimate." When you try to activate using a Volume License key (Mak or KMS), Ultimate rejects it.
The machine restarted. The Windows 7 splash screen appeared. The login chime played.
By following these tips and solutions, you should be able to resolve the "Cannot Activate because this Product is Incapable of KMS Activation" error on Windows 7 Ultimate and enjoy a fully activated and functional operating system.
KMS is a technology designed for large organizations. Instead of every computer calling Microsoft’s servers over the internet, businesses set up an internal KMS host. Every 180 days, client computers (Windows 7 Professional or Enterprise) check in with this local server to renew their activation.