My understanding is they’re a Bluetooth device that do not have direct Internet access on their own; how is their location being updated if you’re not pairing with them to allow them access to your device?

Apple allows them to connect to any device in the “Find My” network and phone home, regardless of whether it who it belongs to. Presumably that includes you driving next to someone with an iPhone if the tag is in your car. It’s supposed to also notify devices that it is travelling with if their owner is not nearby, but that requires you also have an Apple device (or install and actively use Apple’s Tracker Detect app for Android)