Why is this in the license?
Because Hyperion intend to keep all interpretations open so they can make them fit whatever scenario they potentially end up in.
It actually sounds more like something that closes options. If I purchase it, by the letter of the license, I can't install it on a machine that doesn't already have a previous version of the OS installed. And how does that work with machines without hard drives? Those cannot have the operating system previously installed. They have a boot ROM (Kickstart) installed but that isn't an operating system - it's just what gives the computer enough instructions to go get the operating system.
So the big box models usually shipped with hard drives installed with the operating system pre-installed. I can install this on them. On the other hand, most of the wedge models did not so by a strict interpretation of the license I can't install this on them.
Essentially I guess I'm saying that I agree with you about the license having issues. Besides the ambiguity regarding use in emulators they severely limit the machines it can be installed on. Actually I guess that statement actually removes the ambiguity regarding use in emulators - they don't, by definition, have an operating system of any kind installed so this can't be installed on them. This statement may have been intended to be a restriction on emulator use but because of the wording applies to much more.