Plumbing Manifold Use With a Tankless Hot Water Heater
Yes, it still works. Unless a faucet or fixture is open, there is no water leaving the manifold. The heater is thus not running. When a faucet is in use, water flows through the manifold, causing water to flow through the heater and be heated.

A similar thing occurs with a tank heater. When no fixtures are on, the tank is full of water and it is heated. When a faucet is in use, water from the tank flows through the manifold to the faucet, and that water is replaced by cold water from the manifold. At some point, the thermostat turns on the heater in the tank.