Where are Services stored? I created a service using Automator and noticed that it created a .workflow file in ~/Library/Services. Is this the same file that handles the service that I see under (Application's Name) > Services?

If so, does that mean that I can add or remove .workflow files directly in that folder and have it automatically appear in the Services menu? Or do I need to restart in order for that to happen?
Services are in ~/Library/Services and yes, that is the file that handles the service you see in the services menu. Yes, you can add or remove them and they will automatically appear or disappear from the Services menu. Restart is not necessary.