Reading the documentation at https://github.com/watson-developer-cloud/conversation-enhanced#local it states "Ensure that you have a Bluemix account. While you can do part of this deployment locally, you must still use Bluemix.". If I use a custom dataset will any of this data be sent to IBM's servers ?
Specifically I think im referring to step circled red ('Create or import training data') :
I plan to build a similar app to conversation-enhanced (https://github.com/watson-developer-cloud/conversation-enhanced) but want to ensure local data will not be sent to IBM.
Yes, you will need to send data to IBM.
If you are planning on using the IBM BlueMix services, then I recommend you read the terms of use, found here, to understand your full agreement:
http://www-03.ibm.com/software/sla/sladb.nsf/pdf/6606-08/$file/i126-6606-08_05-2016_en_US.pdf