Yep, over internet, and there are always alot of people on. Respawning works like this.. periodically the game quicksaves (so to speak) at a certain point, and when someone dies, they automatically respawn at that point. It's never far from the other players, so it's pretty fluid.
The only issue is that the cutscenes are kinda f'd up and are out of sync.. if one player triggers a cutscene everyone is forced to watch it.. seeing how most of these scenes are meant for one person, it's not really suitable. There's a last man standing mode in which you kill monsters in an arena (lots of new maps they made for this) and see who can get the highest score with the least amount of deaths (as shown in shot 1). They also added a few weapons, such as the classic Double-Barrel Shotgun. With its minor flaws, it's still a cool experience and executed very well.
It's a free mod, obviously, so you guys should really check it out.
Here's a couple more shots.