Thinking about an Xserve, just a few questions

About 4 years ago I had someone in who installed a large windows server, we could then connect to our personal windows account on any pc in the building. The accounts were setup on the server, all files/folders etc were located on the server.
Then a year or so ago I ripped out the windows s*** and bought iMacs. I would now like to have the same system as the windows setup above, is this possible with an Xserve? if so will all system processes be done by the server or iMac, say if I wanted to encode a movie file, will the server do the work or iMac?
If its the server that does the work, should I buy low end macs instead of high end?

Hope that makes sense