I'm wondering how
<input type="text" x-webkit-speech speech />
Is there a speech recognition enging built into Chrome or is it accessing an underlying speech recognition facility in the operating system?
Yup, Chrome does speech recognition via Google's servers. But there's no reason that other browsers couldn't choose to implement it differently (for example using some speech recognition facility in the OS).
Balu, your link is actually a bit out of date. The latest Google proposal can be found here: http://www.w3.org/2005/Incubator/htmlspeech/2010/10/google-api-draft.html
Although speech recognition has been available in the Chrome dev channel for some time, it has not shipped yet and we're not yet sure when it will ship. We definitely want people to play with the API and offer feedback on it, but we don't think it's quite ready for prime time yet.