Does it run in a loop polling the contents?
(Highly unlikely and inefficient.)
Or is it done with some event trigger?
In fact, what I am really wondering is how does Windows Explorer refresh itself when it shows the contents of another computer over a network?
How does the computer (or the OS) with the content notify the computer with the Explorer that its content has changed? If there is a mechanism to notify, what is the protocol? RPC?
See this previous question:
How does FileSystemWatcher work on another computers directory?
It appears to be based on the ReadDirectoryChangesW API function.
Edit: There is a Microsoft article detailing another way to do it, but the documentation for the specific functions imply that it might not work on a remote computer.