The Hyper-V technology can run hundreds of virtual machines on the same host, almost certainly more than the hardware can handle.
If you fully license a single host to run Windows Server 2022 Standard edition, the license includes rights for two virtualized instances of Windows Server 2022 Standard edition (or less). If you need to run more instances, then you fully license the host again. Each time that you properly license the host with Standard edition, you gain another two instance rights.
At some point, you break over into the level where Datacenter Edition is more cost effective.
Note that these rules are exactly the same regardless of hypervisor. They should have done the same when running ESXi. If they are replacing ESXi in-place, and the host was legally licensed for its Windows Server instances, then they do not need to purchase anything additional.