It is recommended that the Disk Groups reside on the DDS server. If the Disk Groups reside on a server other than the DDS server, DDS must be configured with an override name or a mapped drive configured to the file server. However, since mapped drives cannot be used when DDS is running as a service, the preferred solution is to use an override name by applying the -OVERRIDENAME switch on theDDS Server.
See also Using DDSServer as a Proxy to a Disk Storage Server.