Yes Google images is entirely based on the alt tags.
For the general search engines alt text can help to add keywords to your page.
Regards
Bob
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"A website with a thousand resources starts with a single page".
"Don't fight the gator - clear the swamp"
If you use images in your Web pages, its good practice to include Alt text for every image that a visitor to your site will see. ALT tags filled with keywords can also be used to boost your keyword frequency and help you achieve better rankings.
If you want check what search engines sees when it visits your website click on the cached beside the link and than click on text only version on right hand top and you will see what search engine sees.
Search engines indexes ALT text descriptions for JPEG and other image file and we have some good plugins like SEO Friendly Images which makes the work easier and smarter.