I would like to know how the wallet processes transactions and determines which transactions belong to me and which do not.
Yes, walletnotify fires when a tx related to me has changed and whatnot. But I would like to understand the back end a little more in the bitcoind.
Well man, it's a complex subject.
Nobody can explain it to you in like one post.
Had you have a specific question, that would be much easier.
How the wallet processes transactions - that's the ultimate question, but there is no ultimate answer. Just a lot of studying.