It means that the school isn't (officially) allowed to hire you, and their is a chance (depending upon what relations they have with the govt.) that you won't get a Z-class visa. This is turn means you will be illegal and they will likely have to get you a visitors visa every three months.
I recommend you find somewhere legal.
Hello again, quick question to anyone who might know: what potential problems might there be joining a school (university) in China that isn't licensed to hire foreigners? Or is this no big deal, especially with a well established university? One particular U I'm looking at is very established and has 5 foreign English teachers on its language staff, but isn't licensed to hire foreigners. Just wondering what this might mean... thanks!