My s is a Freshman MT at UMich and from his experience it was for placement. It does have a bearing if you have no piano knowledge, as they are hoping that you have enough knowledge to be able to "plunk" out your part from a piece of music for study. There are no practice CD's at the college level for study so it hurts if you cannot learn your own part by being able to read music.
Also, there were 2 incoming freshman this year that tested out of piano completely I believe and my s and 2 others tested out of their piano course half way through the first semester, so although it is an important component, I would not worry about it as much as having a good solid academic transcript, a well prepared resume and audition.
Good luck
