“...Veeam Backup & Replication initiates a new copy session which simply extracts data blocks and metadata from each new backup file (.VBK, .VIB, .VRB) created on any of the performance extents of your scale-out backup repository and copies these blocks and metadata to the capacity extent”

so as I read that blocks are streamed to the capacity tier, like restore only streams the blocks to the target rather than downloading the whole file?

It seems that the restore is blocks as well Craig depending on the scenario.  See here - Restore Scenarios - User Guide for VMware vSphere (veeam.com)

It seems that it is dependent on the SOBR and extents being available what it does.

I will go double check, but I am 99.9% confident there is no working space or cache storage. Never heard of it before.