I've gotten responses saying do not caulk, due to need for summer/winter breathing, expansion, contraction, etc. but also seen responses to caulk.

Caulking would work but I think it's a patch for a bigger issue. Wind driven rain is never horizontal, it should not be able to hit the siding and ride up. If it does then there is likely no membrane or house wrap which would have stopped the issue from going any further. I would also venture that the siding might not be installed correctly. Can you post a close up picture pointing upward at a lap?

It's raining today but will send photo asap. Since siding is vertical I can understand how wind driven rain could get between larger "back boards" and the narrower strips which cover the seams where those "back boards" meet... and there's no caulking where strips cover larger, back board seams.

I misread part of your post. Are you certain your siding is shiplap and not board and batton? Wood Siding Patterns: Bevel, Channel, Lap, Shiplap, T&G, Log Cabin & more! (http://www.buffalo-lumber.com/siding-patterns.htm) They are very different Build Blog Board & Batten Siding (http://blog.buildllc.com/2008/07/board-batten-siding/)

I think you're right... it appears to be board and batton. What I'm seeing are 12' vertical boards with smaller vertical boards covering the seams.
We just bought the house (third owner) so I'm "getting acquainted" with this "money pit" my wife fell in love with.
The leaking happened during a fierce wind/rain storm and it happened above kitchen windows, at window frame.
My guess would be that under like conditions, rain gets in everywhere but only becomes evident at windows. Otherwise (without windows) my guess would be it simply runs down and exits at the bottom of the vertical seams.
I can see where someone (the 2nd owner) tried caulking around the windows and near the leaking area... to no avail obviously.