Hi Jim,
The data is stored in a separate db for each school. That could also very well be running on an Azure Server, although we expect most schools to vote for a database in their own network with no direct connection to the internet.
We also have an azure instance running for Test-Purposes, so we can present the application on machines that do not have SQLServer installed or have none in their local network. Since almost all business logic is implemented on the Server, the performance difference between a local sqlserver and azure is not very high, something that really surprised me. Of course, with some dialogs that load a lot of data from the server you notice a difference, but it is still ok.
I hope that answers your question!
Best regards from Munich, Germany,
Boris Fittkau
(Lead Developer Procurat!5)