When an OVF switch receives a frame destined for another data center, it encapsulates it in a normal IP packet and transmits it over the WAN to the data center where that destination MAC resides. On the receiving end, the local OVF switch strips the encapsulation and drops the frame on the appropriate VLAN as if nothing ever happened. The sending and receiving hosts never know that that they are in different datacenters, or that a WAN link was involved at all.
The underlying table information and routing transport for this scenario is a pretty neat adaption of existing technology. Cisco is leveraging some of the capabilities of the IS-IS (Intermediate System to Intermediate System) routing protocol to make this happen, although the IS-IS configuration is completely under the covers. It really is only about five commands to add a data center to the mix, although the necessary configuration of the Nexus 7000 switches might be a bit more involved.
The upshot is that even though the overlay transport is transparent to the ends of the connection, there's no fear of spanning-tree looping as each site maintains a distinct spanning-tree topology and BPDUs aren't forwarded across the WAN. The OVF functions as a gatekeeper for the frames that should remain local while forwarding those that should be allowed to pass.
When databases fly In the demo I saw, Cisco used OTV to migrate a loaded SQL Server VM from one VMware ESX host to another over a simulated WAN, with the hosts residing at different data centers the equivalent of 400km apart (4ms latency). The VM migrated over in about 30 seconds or so without losing the connection with the client load... with one catch. Although the VM definitely moved, the virtual disk didn't. (Moving an 8GB VMDK through an OC-12 would take far longer than 30 seconds, and such a trip isn't really feasible for a VM under load anyway.) In the demo, Network Appliance's FlexCache technology bridged this gap, enabling the VM disk to remain in the original data center while keeping the delta at the new data center. Naturally, this isn't a scenario that lends itself to a permanent migration, but it might prove useful in some load-balancing and global distribution scenarios.