Hi Aruna,
I would recommend you to go through the TC Licensing Guide at
http://smartbear.com/support/viewarticle/14433/. It contains detailed answers on all your questions.
In a nutshell:
-- Node-locked license must and can be installed on the physical computer only;
-- Node-locked license can be deactivated and reactivated a-new three times only. After that you will have to contact Sales or Support;
-- If you have an Enterprise edition of TC, then you should have one floating license for TestExecute. If you don't want to install TC on the physical box, you should install License Manager (available for download on your Customer Portal where you downloaded TC from, more installation and configuration details in the mentioned Licensing Guide) on the physical machine that will serve as a license server and activate license there. After that you will be able to do any number of TestExecute installations on any box, either physical or virtual ones, but have only one instance running at any given moment of time.