To understand how EVM works on Telos, we need to first look at how EVM based Dapps usually work.
Below is an example of a classical EVM decentralised app design. Both DApp and user wallet connects to an Ethereum node that provides API services over JSON-RPC protocol. Ethereum node manages the state (accounts and balances) and logs (queries of happened events) for its API user in internal databases.
EVM has two different state databases
State that is the current network state accessible to the smart contracts. Smart contracts can update and read theese.
Logs that are are the past Solidity events, mainly used for token transfer, centralised exchange integration and DApp transaction histories. Smart contracts cannot access logs.
EVM is implemented on Telos as a smart contract: all activities that would normally be run by the EVM virtual machine component on an Ethereum node are run by a smart contract on the Telos chain. An Ethereum compatibility JSON-RPC server provides the API Ethereum applications are expecting. It does this by translating the native EOS state from the EVM smart contract to Ethereum expected format.
There are some main differences
Because the EVM is just another smart contract on the Telos chain, there can exist multiple EVMs on the same chain at the same time. They are differentiated by their Telos account name.
Telos does not have the concept of logs. Whereas Ethereum nodes provide the built-in eth_getLogs call to query logs, Telos has logs query/streaming and history management as an external service called Hyperion.
EVM transactions need to be able to pay native TLOS fees for transactions. This bit is managed by the Ethereum compatibility JSON-RPC server that has a native Telos account associated with it. This account is used for broadcasting transactions to the EVM contract. Read more about gas fees here.
EVM smart contract uses native TLOS token as gas instead of ETH.
A similar EVM as a smart contract approach is also by the Near blockchain.