MapPoint looks for the closest road and then applies a straight line distance to the closest road. This works well for short driveways/etc which are not in the road database.
Note that if the distance is more than a specific amount (I'm not sure the threshold off hand), then MapPoint will report than the point is not on the road network and the route cannot be calculated.
Also it is unclear what the behavior is for your backyard example, if the two backyards are next to each other - it might simply draw a line between the two points.