Netboot Image - Where is the user generated data stored

I have a OS X Lion Server hosting netboot images. I also have a 10.8 Server for creating 10.8 images, but am hosting all images from one 10.7 NetBoot server. When a client machine boots a specific net boot image, my understanding is that it copies at least the most necessary parts of the image via network and stores it somehow on its local resources. Does it only store the data in the RAM or does it save data locally? Where is newly generated session data stored? On the Server or locally ?