Yes, NOOBS puts the chosen OS on its own SD card.
What it does, broadly speaking, is:
Shrinks the partition (place) on the disk that it's on, sets up a new partition for your OS in the rest of the SD card, and then installs the OS.
All that is done automatically once you pick an OS.
It will probably take a little while to set itself up, but once it's done, your Pi will boot to whatever the OS is that you chose.
There are definitely people who prefer installing on something other than their SD card, but these people are probably not the target audience for NOOBS either.
For people just starting out with a Pi, keeping the OS and NOOBS on the same card is probably simpler.
RPi 4B w/ Buster in a toasty little official case, and an RPi 3B w/ Stretch.