A bit of both. I have taken an existing ecommerce package that already had an automatic Froogle feed and customised for my own needs. (Mainly because the package in question did not work with UK localisation!)
The "feed" is basically just a tab-delimited text file that is dynamically generated and uploaded directly to Froogle by FTP when the store administrator commands it.
Do you want to see the text file or the resulting Froogle listing?
Here is the current listing of one of my stores that is currently using froogle:
How does Froogle know how to use the categories you assign. For example just because I list under myStuff > Toys > Big red Toys does Froogle use this path at all by trying to match it to one of it's existing product paths or does it ignore it?
"Please do not attempt to mirror Froogle's category structure rather than using the one already on your site. We will match your categories with the Froogle categories."
I am not quite sure how they do that though. I would have thought that would take some kind of manual intervention to get the right categories every time. I know the first time you upload a feed they quarantine it until somebody has taken a look at it. It would be easy to match the categories then but I don't know what would happen if you subsequently used a completely different set of products and categories.