No, it does not call it. It just makes all the procedures in the dnsconn.prg available for your app and you have to call these procedures explicitly by "DO procname" or as functions "procname()".
SET PROCEDURE is one of the basic commands in classic xBase language and you should know all its possibilities. See more in
http://msdn.microsoft.com/en-us/library/c10akhe6(VS.80).aspx or
http://fox.wikis.com/wc.dll?Wiki~VFPSetProcedure