Water flows from the reservoir into the torch water connector (possibly via the machine, possibly directly depending on the welding plant), up the torch lead, around the torch body at the top and back down the return line to the tank, possibly via a cooler depending on setup.
Everywhere. The other day some idiot replaced the torch on one of the tig welders and mixed up the gas and water connections, the first time someone tried to strike up water ****** out of the torch.