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in MS exchange and outlook, whats the difference between a Mialbox and a PST file, in respect to functionality and residing location?

Mailbox on the server
PST where you like, server, local machine, USB key if you want!As long as your connected to your server same funcationality now with outlook remote mail set

I'm not well versed on Exchange, but I believe it uses an ost file rather than pst, and stores the mailbox (ie ost) on the Exchange server.
Stand-alone Outlook uses a pst file, which can be stored whereever the user prefers.
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"I'm not well versed on Exchange, but I believe it uses an ost file rather than pst, and stores the mailbox (ie ost) on the Exchange server."
Actually, OST's are used in Exchange 2003/Outlook 2003 cached mode. It is an Offine copy of what is stored on the server.
PST are typically used without Exchange. Very notably, you can have a personal store within the same view as your Exchange account that is separate, not stored on the server, and is stored locally on your machine. For example, if you allow Outlook to Archive older messages, that is exactly what happens. These would be PST's.
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Negative. Exchange stores this data in an EDB jet database file. In versions prior to Exchange 2007, there's an STM file as well. Messages received are temporarily stored in logs that get committed to this database.
Storing mail in a DB provides numerous advantages, probably the best one is single instance storage. If your mailbox is in the same edb db as my mailbox, if someone sends both of us a message, the message is only stored once, with pointers to both of our mailboxes.
PST's however do become useful during migrations and disaster recovery scenarios. Microsoft has a free utility called ExMerge, which can import/export data to/from these databases into/from PST files.
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P.S. This is very similar to how the Active Directory jet database works. It works that way because the Exchange db guys coded it. The direct predecessor for Active Directory was the directory service in Exchange 5.5. :-)
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No problem.
I worked on the Exchange Admin Premier Product Support team at Microsoft a few years back, so I was privy to a lot of the not so well known things about Exchange. Happy to share what I know.
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