You kind of answered your own question there. They scan the microchip since it can't be lost and they then contact the owners (granted it doesn't do much good if you don't keep the registration up to date).
It's a shame something like this happened but if you can't afford the microchip which will cost you maybe $50 bucks, then investing a couple bucks in a collar certainly seems fairly reasonable.
correct. Microchip has all the data of the owner and the pet. so the animal control could of called the onwers. Problem fixed. Here is another solution. Watch your dog better.