How does Microstation know where to look for the ucf?

To trace the _USTN_USER and _USTN_USERCFG variable definitions launch MicroStation with the -debug switch. That will generate a text file with each configuration file and variable definition as it processed.

for v8i it would be;

_USTN_USERCFG=$(_USTN_USER)$(_USTN_USERNAME).ucf [C:\ProgramData\Bentley\MicroStation V8i (SELECTseries)\WorkSpace\users\untitled.ucf]

This is the default of how it finds the UCF file.

For him to better understand how it is finding the ucf I would recommend look at a debug.

By default, perhaps those variables link with other variables eventually defining the UCF name and location but they aren't really the cfv vars of importance. Indeed in my own config my UCF is in an entirely different folder outwith the folder which  _USTN_HOMEROOT is assigned. The pertinent config variables are for UCF location and name are _USTN_USER and _USTN_USERCFG.

Adam,

MicroStation has been customized to look to those locations. By default it is not setup to work that way, so someone has changed this. Do you know who in your office would have set this up as they would have a better understanding of what was done.

https://communities.bentley.com/products/microstation/w/microstation__wiki/8873/microstation-command-line-options-and-switches

This might help.