Attitude? [longer comment snipped upon not wanting to upset the 13 year old girls around here with comments that might offend Dude your mistaken, I was in no way trying to be smartass or lippy or condescending, your reading tone into it if that is your take. I was simply agreeing with you and asking a question]
The db is on the client.. I think your not misunderstanding where the db is maybe? How you worded it would be the client creates the index(db) and then yeah he searches it. Then you go to say "Well it COULD work by the client having an index" which is exactly what you said the first time.
Where do you think the db is stored? The client running locate32 is the one creating the db, so it would be stored where ever you configured the software to store it, and it searches mapped drives just like it would a local drive.
Now there is a tool search everything http://www.voidtools.com/ that runs on the server and indexes its files - and then you can query that..