Why wouldn't Picard recognize Seven of Nine?
Looking just at the canon of Star Trek: Voyager, we know that the Voyager crew is the only ship to make it to the Delta Quadrant and back. In addition, they had a rather extensive experience with the Borg in the process.
The very fact that they went out to the Delta Quadrant and back means that as soon as they arrived back in Federation territory, they're instantly famous. They've traveled further than anyone else in the Federation. Think of, say, Neil Armstrong - anyone who even took a passing interest in space would, at the time that the crew of Apollo 11 returned to Earth, recognize them.
Picard is a Starfleet Captain, which means he would have gotten briefings and had access to information about Voyager that extend further than your average citizen would have gotten.
In addition, Picard and the Voyager crew - especially Seven of Nine - have had dealings with the Borg. It would make sense that Picard would keep up on any news about the Borg, especially someone who, like him, was assimilated and then removed from the Collective.
Even if you assume they've never met in person before, it's safe to assume that Picard would have seen news and briefings and other information about the entire Voyager crew and especially Seven of Nine.