Hi Arun,
When you create a VDB, there are a lot of steps involved, but put simply the parent (i.e. dSource) filesystem is basically thin-cloned on the Delphix Engine, and then exported to the target server (via NFS for UNIX or iSCSI for Windows).
Data (including log files) will not be stored or moved to the target server, it lives on the Delphix Engine, but is mounted onto the target.
Regards,
Scott.