Clarification a new address isn't used when you RECEIVE funds to an existing address. It is only used when you SEND funds from an existing address (the new address is used for change).
Ok I think this is the part that was initially confusing to me. Is this what's being described on blockexplorer.com when viewing an address history?
Every time a transaction is sent, some bitcoins are usually sent back to yourself at a new address (not included in the Bitcoin UI), which makes the balance of a single address misleading.
So the key pool contains 100 addresses, and a new one is used
for this process when you send coins.
Either way, my understanding of how the software determines the balance is correct?