For transcoding, is this performed in software within the SBC, or is an additional server needed?

Transcoding is performed in hardware. Trancoding devices are used to perform treatment of the media such as changing the CODECs, changing the way DTMF tones are trasnported or converting fax calls frim passthrough to T.38, for example. The data sheet for the transcoding devices can be found here: https://freesbc.telcobridges.com/wp-content/uploads/2015/02/TSBC-HW-TRANS_v1_2.pdf. RTP for transcoded calls is sent to the transcoding devices for treatment and then sent back to FreeSBC. The transcoding devices are not visible from the outside world.