Some days, you just have to ask yourself, <Am I the sort of degenerate who's going to go read the rsync code and see if it properly handles hardlinked directories?>
(The answer is yes. It's not obviously broken at first glance, but I'm not going to go further than that.)
So.
Rsync is designed to do a network sync. It wants to run a process on the source and a process on the destination.
When the destination is a network drive, mounted locally, the destination process runs locally, and does all the necessary reading off of the network drive.