As the title does ask: Does using a hotspot while connected to WiFi use cellular data?

I'm asking because my Windows 8 laptop cannot recognize my friend's router, as in it can't even find it, however, my iPhone 4 can. I have connected using my iPhone 4 and turned on the "Personal Hotspot" feature.

Does this use my Data Allowance from Telstra, or will all internet/network traffic flow through to the router?

If the above answer is yes, what if I took out my SIM Card? Would it not work at all, or flow through to the router?

Thanks,

Jarod