Yes, It uses Timer1. But it doesn't turn on the External Oscillator.

Timer1 has a feature that lets you hook up a 32768hz crystal on the T1OSO(RC0) and T1OSI(RC1) pins. This oscillator will continue running in sleep mode, so it can be used to keep time like a clock.

But the way you are using the Timer, it's using the signal from the main System Oscillator, so there's no need to turn the ext. osc on.

For the Elapsed timer, you can use the StartTimer and StopTimer subroutines.

hth,