This confuses a lot of people because the naming is not good.
TL;DR: Think of 'use server' as 'use server action'

'use server' is not the opposite of 'use client'
If you do not have any notation at the top of your file the default is a server component which runs on the server.

You have to differentiate between server components and server actions.
Server actions are used for mutations (update, delete, create).
Server components are mainly used to get (read) data.

You are right both, server actions and server components run on the server but that's pretty much all they have in common.

If you have a file which holds a couple of (async) functions (no declration at the top) and you import a function into a server component you just import a function. It's just code splitting / having reusable functions

If a file does have 'use server' at the top it actually contains a collection of server actions (mutations) which can be imported from a client component.

Hmmm okay, so if those server actions are imported from a client component, is it safe to assume that the code in those server actions remains hidden on the server? I think I'm just confused on what the point is of the differentiation

For example, you have the data.ts file that contains functions that call SQL to fetch data. These functions are imported into server components and used there.

So no 'use server' is necessary

yes code in those server actions remains hidden.

if you want to guarantee that a piece of code is never imported to the client, use import "server-only" instead of "use server"

But with the forms, you import methods from the 'actions.tsx', which are "server actions". And I guess if a component includes a form that needs to be submitted does that mean that component has to be a client component? And therefore if you want to use a function that is going to submit the data and make a database call it has to be a server action that does it?

How come a client component like a form can't import and execute methods from a file like data.ts?

is it because they would be exposed?

yes.

when there is a use server, what happens is this:
* an implicit api route is created
* that api route contains the logic of the function
* on the client, it goes from running that function into fetch() that api route
so the logic inside the use server functions remain hidden on the server.

without the use server directive, none of this happens and the logic inside the functions are imported directly into the client

Okay so is the reason that the code in data.ts is safe is because it's functions are only ever imported into server-side components? And the moment I import anything from that file into a use client that code is exposed? I guess trying to run SQL on the client side wouldn't do anything anyways...

And the moment I import anything from that file into a use client that code is exposed?

yes. that is why, as i said above,

if you want to guarantee that a piece of code is never imported to the client, use import "server-only" instead of "use server"

Okay thanks. When did it make sense to use server instead of server only?

they are for completely different purposes. use server is for server actions. import "server-only" is simply a build-time guard to prevent you from accidentally importing files to client components