I found this 'Communication Components' in SQL 7 book on line. In SQL 2000 book on line, there is a similiar statement.
It looks only local named pipes or shared memory are used.

Microsoft® SQL Server™ supports several methods of communicating between client applications and the server. When the application is on the same computer as SQL Server, Windows Interprocess Communication (IPC) components, such as local named pipes or shared memory, are used. When the application is on a separate client, a network IPC is used to communicate with SQL Server.


Thanks


Jim