I was able to answer my own question and thought I would share it with everyone here. When LSAC receives your transcript they analyze it in several different ways before determining you GPA, which is included in the Academic Summary Report they send to the schools you apply to. So they look at:
1. the schools you attended and note any honors or other accolades
2. your school's LSAT distribution - if your school has a large percentage of students that do well on the LSAT, LSAC determines whether its a tougher school than a school with a smaller percentage
3. your college's GPA distribution for the years you were enrolled there. similar process as LSAT distribution.
4. your college grades - breaks down your transcript year by year. and compares them to overall school GPA. and additional factors.
As I assumed, and think would be obvious, LSAC in fact DOES include the credits for classes in which you received an incomplete or NC in the calculation of GPA. If you repeated a course, all grades and credits that you earned for that course are included in the calculation of your GPA as long as it appears on your transcript.
Hope this is helpful to anyone.