* Sending all microphone input to a remote server would be really bad for battery life and data usage.
* It still works even in airplane mode.
* On ChromeOS (which isn't Android, but may share the same code) their privacy whitepaper [1] says:
If you opt-in to the feature, Chrome OS will listen for
you to say "Ok Google" and then send the audio of the
next thing you say, plus a few seconds before, to
Google. Detection of the phrase "Ok Google" is performed
locally on your computer, and the audio is only sent to
Google after it detects "Ok Google"."
[1] https://www.google.com/chrome/browser/privacy/whitepaper.htm...