the POTS telephone line, where it's sent while the telephone is ringing; the dialup modem is connected to the line, and can read and decode such information to pass it to the Phonetray application. As long as you have an ATA that converts VoIP calls (e.g., SIP INVITE messages) into rings + caller ID sent to a conventional analog telephone set, _and_ you connect the line from the ATA to the "line" connector of the modem and the "phone" connector to the telephone set, Phonetray should work as advertised. In fact, Phonetray won't even _know_ that the call originally arrived from the Internet and was converted by the ATA before being sent to the modem.
Of course, un theory one could also get the Caller ID directly from the SIP messages arriving from the Internet: but that would require a way to make those SIP messages available to the software replacing Phonetray (and, of course, would also require the existence of such software!). But the RT31P2 captures the SIP messages and uses them inside its built-in ATA, without ever giving the PC a chance of seeing them on its ethernet interface. This means that also the caller ID information never arrives to the computer, and therefore can't be used by any piece of software running there.