Yes, it sure does. Cfg files and harddisc images are read from the harddrive though.
Btw because of this and the poor way that dos handles memory (it pretty much doesn't) and the lack of "true" support for newer hardware you shouldn't be running dos if your system is farily modern. Bascially if you have more than 128 megs of ram and your harddrives are larger than 8 gig and your processor is faster than 300 mhz you should be running windows.
That isn't an opinion btw... those are the benchmarks at which dos can safely handle your resources in an efficient manner. Any larger than that and it just gets sloppy and basically the extra power isn't utilized properly.