Mondrian uses Apache VFS to fetch the catalog from the provided URL. You have a lot of options. The catalog could be on the local file system, or it could even be on an HTTP server, in which case you pass the web URL of your catalog directly.
It also supports much more complex scenarios. Apache VFS allows you to define any type of file handler you need. You could, for example, create a handler which responds to requests in the "bacon://" protocol and generate the catalog dynamically.