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Here is a blurb about Windows Desktop Search that explains how it works (this was taken from Microsoft’s Windows Desktop download page )
… Windows Desktop Search, you can search for e-mail, documents and other files located on your computer. No information about the files on your computer will be sent to Microsoft as part of this process. Instead, Windows Desktop Search will index the content of your computer and store the index file on your computer. You can customize Windows Desktop Search to index only specified folders on your computer. Windows Desktop search will not store copies of e-mail or documents after they are deleted.
