>I'm a little confused with how MSDE works...does the server that houses the database ("adp" file) have to run the MSDE service? Or only the client machines that run the application that accesses the database?


MSDE is a scalled down version of SQL Server. It works the same.
You have to run it on one PC (the server) and you can access it via ODBC or OLE DB from any PCs (the clients) on your network. The data files are centralized on the server.