Question: If I want to `tail` a 25 GB textfile, does the `tail` command read the whole file?

Since a file might be scattered on a disk I imagine it has to, but I do not understand such internals well.

Answer: 
No, `tail` doesn't read the whole file, it seeks to the end then read blocks backwards until the expected number of lines have been reached, then it displays the lines in the proper direction until the end of the file, and possibly stays monitoring the file if the `-f` option is used.

Note however that `tail` has no choice but to read the whole data if provided a non seekable input, for example when reading from a pipe.

Similarily, when asked to look for lines starting from the beginning of the file, with using the `tail -n +linenumber` syntax or `tail +linenumber` non standard option when supported, `tail` obviously reads the whole file (unless interrupted).
If `head` or `tail` *appears* to be reading the entire file, a likely reason is that *the file contains few or no newline characters*. I tripped over this a few months ago with a very large (gigabytes) JSON blob that had been serialized with no whitespace whatsoever, not even in strings.

If you have GNU head/tail you can use `-c N` to print the first/last N *bytes* instead of *lines*, but unfortunately this is not a POSIX feature.