If I have a user account, called "eric" and my girlfriend has a user account, called "jill", we both have different user preferences. When I open Word, I make my changes to the preferences for Word, and it saves those changes to eric/Library/Preferences/Microsoft/Word Settings (10). When my girlfriend opens Word, and makes changes to it's preferences, it saves those changes to jill/Library/Preferences/Microsoft/Word Settings (10). Each user has their own specific preferences for every App to read from.
This of course is all based on your example of an application's "config" file. From your example, the above holds true.
Is this what you were asking?