Based on my testing, the off-screen cache resides in system RAM. Bumping the setting up consistently increases RAM usage in my case, and I imagine for everyone. It was one of the many optimisations that Asobo introduced with SU5 to make the sim fit within the memory budget of the Xbox Series S|X.
As for the VRAM management, I think it is likely that depends on the user’s GPU. For me it is almost full most of the time, so panning the camera will cause VRAM usage to fluctuate a lot, and it can cause some stutters even at the Ultra setting. But for GPUs with higher VRAM amounts, the sim may choose to keep a copy of the cache on the GPU at all times. In fact, there was a bug in FS2020 (might still be there as of SU16, but I can’t check myself) where enabling FSR 2.1 would disable VRAM management and cause overflowing on GPUs with smaller memory amounts.
If a part of the scenery in view is not in the off-screen cache, then it will be pulled from the rolling cache, and if it is not there either, it will be streamed anew.
Again though, according to my observations there isn’t any indication that the off-screen cache isn’t working properly in SU4. The difference in scenery loading speeds is still rather significant between each off-screen cache setting. I continue to insist that what is being described in this thread is rather a camera bug, which could also be connected to this.