They do both. They sync directly to other machines over LAN and also send the files to their servers. Bandwidth is saved through other means. The files are spl

They do both. They sync directly to other machines over LAN and also send the files to their servers. Bandwidth is saved through other means. The files are split up into chunks for which they compare hashes. If a chunk has already been uploaded to their servers by ANY Dropbox user it won't get reuploaded again. This is especially effective for media sharing, because lots of people will download the same torrents and put them in their Dropbox folders to watch somewhere else.