So at a high level, it basically uses the VC engine to alert VM's that a back up to be taken, once the VM's are in a state for backup, it will trigger a back end snapshot at the NetApp volume, this ensures consistency of VM's.
the state of the machines during the backup depends on the config and capability of the VM - for example if a vm can't be backup up live, it will be paused, but most things can be and this, in my experience (and i'm know vmware guru) is pretty rare use cases.
in terms of the use of VSS within the Windows VM - when vmware alerts the vm, this should trigger the VM to alert the OS that it is about to be backed up, this will trigger VSS so ensure consistency within the VM.
I think this relies on the vmware services to be installed on the VM - so it can be triggered.
there are some configuration considerations etc, but at a high level basically VSC triggers a range of vmware activities to make the machines consistent ahead of triggering a NetApp snapshot, to ensure consistent and reliable snapshots.
hope that help.
look up the VSC guide on the documentation site, that may well go into more detail.
a lot of the process may change dependent on vmware versions and VVOLS changes it again from what i understand
Paul.