From Section 2.2 of the release notes:

The embedded server acts as a true local server for a single
client accessing databases on a local machine. It can also
act as a remote gateway that redirects all network calls to
other hosts, just as the regular client library
does.

If my understanding is correct, I can connect to:

localhost:MyDB

This is identical to using a normal fbclient.dll and the connection
is actually to the firebird service on my local machine.

Where as connecting to

c:\database\MyDB.fdb

will use the embedded engine.

(I think that is a better way to look at my question)

Adam