Recently Ajay Sudan, Product Manager for VSTS, answered a question regarding some confusion over the differences between TFS Workgroup Edition and TFS Standard Edition.  Here is how he summed it up.

TFS Workgroup Edition is not licensed on a Server/CAL model. This means CALs are not required when using the Workgroup Edition. For this reason, the Workgroup Edition does not include any CALs. TFS Workgroup Edition can be used by 5 unique users using any client (MSSCCI, 3rd party client, VS Pro, Team Edition, Project, Excel, etc.).

Once you grow beyond 5 users, you’ll need to upgrade to TFS Standard Edition, which is licensed on a server/CAL model. This means that you must make sure all users have the necessary CALs in place.

The full details are available in the Microsoft Visual Studio 2005 Team System Licensing White Paper.