The speech is sent to Nuance's servers to be converted to text then sent back to the phone. There's a security risk there.
In order to improve recognition accuracy and to dictate names into the Address Field, Dragon for E-Mail will only upload names from your address book when permission is providedxxx8230;no emails, addresses, phone numbers, or other personal information are uploaded. This information is not used for any purpose other than improving the usability of the application. Dragon for E-Mail will also utilize the data in spoken messages to continuously improve and provide high speech recognition accuracy. All data are processed and maintained in secure data centers according to stringent privacy and security standards. For more information, please view our end user license agreement EULA - DICTATION
Yes, you need network access, i.e. a BlackBerry data plan.