This section considers some key concepts to consider deploying VXLAN (Read More About VxLAN Overview). Virtual Tunnel End Point (VTEP). As the name implies, the VTEP corresponds to the IP address that defines the beginning or the end of the overlay tunnel. Depending on the role, the VTEP can reside in many places. Initially, it was defined on the virtual switch, but later on, it found its way to other devices such as physical switches, firewalls, routers and so forth.
Depending on the location of the VTEP, devices can play different roles in the VXLAN construct. At the edge, the virtual switch played the role of encapsulation or de-capsulation device, ingesting the packets from the virtual machine and inserting or stripping of the correct VXLAN header respectively. Examples are the VMware DVS and the Cisco Nexus 1000v. These devices implement the basic VXLAN function.
Below provides an overview of this basic function of VXLAN. A virtual machine sends a packet to another virtual machine on another physical host. The traffic enters the vSwitch untagged and based on the vnic configuration will be assigned a VXLAN segment id and will be encapsulated in a UDP packet with VTEP source and destination IP address. The packet is routed over the layer 3 network and eventually reaches the VTEP tunnel destination IP address where the VXLAN header is stripped off and the packet forwarded to the destination virtual machine.