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Do sims automatically drive to neighboring cities for jobs, or stay in their city? I'm having a worker shortage in an otherwise prospering city, so I built a residential-centered community next door. Will the sims in the separate town travel for jobs in other cities?

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Sims indeed will drive to a neighboring city to work. If you have the Rush Hour expansion pack, you can see this effect by using the traffic query tool on roads leading out of town.

Keep in mind that this will set the commutes of the residential properties to "long", which impacts their desirability. Also, there is a design problem when doing this with three or more cities, known as the "infinite commuter loop" which will cause commuters to rotate between the three cities indefinitely.

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