I am wondering which database holds documents? I know that the documents are held as BLOBS in the database itself, but I can't seem to figure out what database that is?
I would take a look at these two links:
They go over the various databases that SharePoint has under the hood and what their purposes are.
That being said... I would recommend staying away from directly interacting with SharePoint databases. Microsoft provides an object model that allows you to perform any actions that you should be performing. If you manually start mucking around in the database there is a good chance you will blow up your data or render your instance of SharePoint "unsupported"... Be careful!
Direct modification of the SharePoint database or its data is not recommended because it puts the environment in an unsupported state.
In the content database that the site uses.
Here is a pretty good article: http://sharepointsolutions.blogspot.com/2008/08/exactly-where-sharepoint-documents-are.html