It means that when you double click a file, the application assigned with the filename extension is launched with the filename is passed as a parameter to it. With update 4 you can't double click a *.jar file to launch a Java application unless you assign the filename extension yourself.
We have identified an issue in the JRE installer that results in this problem on some Windows configurations. java.com has been switched back to JRE 6 while finish analysis and fix. We expect an updated version to be posted on java.com shortly. You can work around it by manually editing your Windows registry key for the file association, or just wait for an updated version of 7u4 to be posted.
Sr. Director, Product Management
Java Platform Group