When the same virtual switch is shared by two VMs:
Before packets reach the other virtual machine (VM), they physically leave the edge, travel across the physical network, and then return to the edge if the virtual switch is not isolated from the edge.
Packets only transit via the virtual switch and utilize the overlay network to access resources on other nodes if the virtual switch is separated from the edge.
The latter strategy is more effective as traffic entering the virtual switch mostly makes use of the overlay network and only sometimes reaches the actual network.

When the same virtual switch is shared by two VMs:
Before packets reach the other virtual machine (VM), they physically leave the edge, travel across the physical network, and then return to the edge if the virtual switch is not isolated from the edge.
Packets only transit via the virtual switch and utilize the overlay network to access resources on other nodes if the virtual switch is separated from the edge.
The latter strategy is more effective as traffic entering the virtual switch mostly makes use of the overlay network and only sometimes reaches the actual network.