A daemon is a process that runs continuously in the "background" on your computer. It is designed to respond to requests from other processes, such as software applications on your network. UNIX users are probably familiar with this term.
Daemon comes form the Greek word "ghost". On Windows, daemons are also called "services".
The license manager is composed of two daemons:
The ESRI vendor daemon runs on your network license server. The ArcGIS applications request licenses from the ESRI daemon. The vendor daemon keeps track which licenses are checked out and by whom.
The license manager daemon, lmgrd, ‘talks’ to the vendor daemon (ESRI). Lmgrd also starts and restarts the vendor daemon and can be shared by all applications from all vendors, as this daemon neither authenticates nor dispenses licenses. Lmgrd processes few user requests on its own, but forwards these requests to other daemons (the vendor daemons).
You can only have one license manager and ESRI vendor daemon running at a time on your license server.
If the ESRI and/or lmgrd daemon terminates for any reason, the ArcGIS applications currently running will lose their connection to the license manager. The ArcGIS applications will attempt to reconnect to the license manager 5 times (once every 2 minutes). Applications running when this occurs will not terminate unless the license remains unavailable after the fifth reconnection attempt.