New Mac 21.5 but No OS...What if?

Ok so for Christmas I have been given a new iMac 21.5 Quad but there is no Lion OS included?
Firstly, what happens if my HDD goes and I need to replace the HDD? Will the iMac on first boot detect that there is a new HDD and connect to apple servers to re-install Lion and will this be at a cost?
Or will I have to buy Lion OS and install it via removable media, e.g. DVD/USB/Internet? Does Lion OS require a serial or activation product key on a new install?
Hope someone can fill in the blanks for me. Thanks.
Lucas

Get yourself a USB memory stick, go to this
page:
http://support.apple.com/kb/DL1433
Download and launch the application and follow the
instructions.  You will then have the Recovery HD
on the USB stick that you can then use in the future
to reinstall OSX for what ever reason may come up.

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