Yes, that is correct. More specifically it is the users  from the WSS site  that
fulfill either of the following 2 conditions:

1) Was added individually to the site
2) Was added as part  of a group and has accessed the site at least once

That's what I thought..I have another question about something that
he had been observing.

On the portal level, a select few users  have Administrator rights,
and one or two have Web Designer rights, while all the other users
have basic Reader privileges. For those people, we have a domain
group (we'll call it "all users") with Reader assigned to it.

In document  libraries, there is an "Owner" field, which seems to get
the list  based on the two conditions you had mentioned. This
particular employee noticed that the name that is listed for him is
not the actual name he uses. For instance, he goes by his middle
name, not by his first name, which is what was in Active Directory.
A few weeks ago, we changed some of the preferred and display names
for these people that are addressed differently than what their real
names are.

As a test, I added the user individually back into the portal
separately as a reader. But, the name still showed up as his full
name. But we tested out adding a different user that we also had to
change in AD, and the name showed up correctly for her (for the name
she goes by).

Even after fixing this, after visiting the portal for the first time
(to my knowledge  he hadn't been there before the Active Directory
change), the original colleague saw that his full name was being
used in the "Owner" field, not the one he normally goes by. Is
there any way to actually change the values of the "Owner" field?
And has anyone else noticed any of this weird behavior at all?

i think this list  shows that which users  have worked on the documents

Chances are the user account that is misbehaving accessed the site  before the AD
change was made and picked up by the SPS AD synch. I believe the only way to
fix this is to remove the user and re-add them, as the Display name is stored
seperately from the other AD attributes and doesn't get updated once it is set.

Yes, there's a very good chance that he might have browsed before
the change. I figured there isn't much we can do about it now,
besides what you mentioned. Even if that step were taken, I'm
assuming each document  library with an "Owner" field bound to user
information will still have all the old names of users  who had
browsed before?

Yes, your assumption is correct.............

Ok, I think I just about have as much information as I need.

Incorrect - see my earlier response.