The Zimmerman method adjustments to watering times run in weather.cpp on the OS, all the weather information it requires is retrieved from the weather#.py (# is a number) script which are then sent back to the OS for consumption and use by weather.cpp and the rest of the firmware. So while no, the scheduling calculations are not run in the cloud, they are inherently tied to the requirement for weather and scale data from WU or Yahoo and weather#.py respectively, and thus require an internet connection.
Hopefully that’s clear as mud or at the very least helps,
Shawn
Edit: ***Changed a bit for clarity, weather.cpp adjusts watering times based on scale, weather#.py calculates scale from weather data on WU or Yahoo***