The answer is yes, it can be used for that. Yes, they need to have InCopy. You do not need InCopy and you most certainly don't need InDesign Server.
For a less expensive option check out StoryTweaker from Rorohokio:
I've another problem as a translator in that the files i receive for translation are badly segmented. Speaking to my client they do not seem to understand what could be changed on their side to help with the segmentation. As bad as it is to have poor segmentation, so that sentences are broken up over 3 or 4 different translation units, when the client changes the formatting on their side, the previous translation units are lost as the application segments them in a different way.
Has anyone else come across this, and if so can they suggest something to resolve this?