I was under the impression that is where your spouse/partner lives. I call the cic and the rep told me that inland app, your spouse is allowed to remain in Canada for the process of the application as long as you renew her visitor status every 6 months.
If I applied from outside, she will not be able to live in Canada in the mean time.
As far as the app Processing location... I tough that for Inland, the complete app is being processed in Vergeville AB. And the out land is Mississauga for the sponsorship part then being transfer to the Canadian visa office in the states for the spouse part.
all she has to do is enter as a visitor and extend her status from within Canada. You provide proof of funds and travel health insurance. I "visited" the entire time my application was in process. I just couldn't work or go to university. My process took exactly 200 days, or a little over 6 months. This is longer than a lot of people's because I applied through Quebec and there's another hoop to jump through for that. An inland application takes at least 8-9 months to get first stage approval and could be even longer til actual PR is granted.
The CIC reps are told to recommend inland cases if the spouse wants to stay in Canada, but for countries that are Visa Waivers (like the US) it doesn't make any sense. With an inland application, you wife wouldn't be allowed to leave Canada without risking that the entire application is thrown out. You can imagine things like family emergencies being a huge problem!
You are correct about the visa processing centers.