Etherpad stores the documents and its data in the mysql database on your VPS. While editing, the clients sync their changes mostly real-time to the server.

I am not fully sure what happens if you are offline and edits cannot be submitted to the server, for some time, then later the client gets online again, while the document already has changed by other clients on the server. Essentially for such more complex conflict resolutions, you have to ask upstream or see what their docs have to say about this.