I understand the default location for client files on a Windows server environment would be: $username$\Documents
Is this correct, if so why.
I understand the %username% is for roaming profiles?
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Your question is confusing. There is no default location for client files on a win server. The $username$\Documents location is for local user files as it is in all other win versions. Are you talking about a domain controller or file server?
The %username% is a VARIABLE, it's set in the system and will point to whatever path is set for the user files.