The http://tomcat.apache.org/tomcat-7.0-doc/class-loader-howto.html docs do a great job of defining the priority of classloaders for a deployment where CATALINA_HOME is the same as CATALINA_BASE. Through some experimentation it appears CATALINA_BASE/lib is also searched for classes. It would be nice to see the docs reflect the additional location(s) searched and the order in which they are. For example will CATALINA_BASE/lib/some-classes.jar take precedence over CATALINA_HOME/lib/some-classes.jar?
BASE takes priority over HOME. classes take priority over JARs. I have updated the docs to reflect this. The changes will be in 7.0.20 onwards.