Yes, unless the client's whole system crashes. Assuming communications is TCP, the license is automatically freed immediately. If the whole system crashes, then the license is not freed, and you should use lmremove to free the license. If the whole system running the client application crashes or is disconnected before the license is checked in, the license will NOT be freed automatically. To free the license, use lmutil lmremove or stop and restart the server.
FLEXlm applications send periodic heartbeats to the server to discover if it has died.
What happens when the server dies is then up to the application. Some will simply continue periodically attempting to re-checkout the license when the server comes back up. Some will attempt to re-checkout a license a few times, and then, presumably with some warning, exit. I'm getting the error 'encryption code in license file is inconsistent' or 'invalid license key'. The license file was typed in incorrectly, or it was changed by the user.