Amazon ec2 user-data how does it work

Question

We are starting instances, and accessing the user data we place. But does anybody understand the internals of this operation (from Amazon's side)? When we pass in the user data, at what point is that data transmitted to the VM (is this a Xen feature) and where is it stored?

I first thought it was set as the USER_DATA env var, but we can also pass it as a file. Where is that file stored? Is it generic to all instances or varies depending on AMI?

This is not a problem per se, just wanted to know how Amazon does this.