Favorite lists can be populated with tracks automatically
. Either when listening to music and/or immediately based on one or several keywords (tags). Read more
Does the program as well as the music files need to be on the same computer ?
Yes. You cannot have AmpJuke on one server (ie. your ISP-server) and music on another (ie. your home computer).
However, it is perfectly legal (in this context) to have AmpJuke installed on f.ex. a harddrive and all your music files residing on f.ex. an attached USB-drive.