The Windows (in my case) desktop installs crashplan & the freenas server is the crashplan "server" ....
The diagram you reference is from Step 4 of the installation
Guide.
The purpose of Step 4 is to provide the connection over which CrashPlan's graphical user interface (GUI) is re-directed to configure the server, which occurs in Step 7. In other words, this Step allows you to hijack the software you've installed on your Windows computer in order to configure the software that you've installed on your FreeNAS server.
Step 4 doesn't do any backups; it just provides a connection for configuring the CrashPlan installation on the server.
... does the server then reach out to crashplans internet servers to store the data?
The server CAN be configured to use CrashPlan Central, i.e., CrashPlan's (paid) cloud storage, as the server's backup Destination. It's up to you to configure CrashPlan based on what you need it to do. It is NOT necessary to use CrashPlan Central as a Destination. In fact, this
Guide is intended for setting up CrashPlan running on FreeNAS to back up local computers to the FreeNAS storage, not CrashPlan Central.
Are you storing the desktop PC's data on freenas within a jail?
The
Guide stores the backups OUTSIDE of the CrashPlan Jail, as shown in Step 6. Do NOT store your backups within the Jail. If you decide to start over at some point in the future, you'll want to delete the Jail. In this case, backup data stored within the Jail would be deleted when you delete the Jail.