Windows Phone 7 also did this (as least in my current A4).
The phone just treats the car as a Bluetooth headset. (The "Speech" setting lets you control when the phone reads texts aloud.)
Note that in WP7, the transcription of your spoken reply goes out over the cellular connection to be converted into text. I don't know if that's still true with WP8, which does have more in-device speech capabilities.