I have a L2TPv3 tunnel running over my layer 3 MPLS cloud.
I have a test laptop connected on one end of it with an IP.
When I successfully ping another IP at my other location on the other end of the tunnel how does it know the IP address is on the other side?
L2TPv3 provides just a point-to-point L2 transport service that connects two distant switches
on site A PC1sends out an ARP request to resolve PC2 IP address. The request is sent inside a L2 broadcast frame.
The broadcast frame is propagated everywhere including the L2TPv3 pipe.
PC2 answers to ARP request. From this moment on IP communication can work and IP packets travel inside ethernet frames that are carried inside L2TPv3 packets.
Switch on site A learns PC2 MAC address is out port of router configured for L2TPv3 on site A.
On their turn the L2TPv3 packet is encapsulated in an MPLS frame inside the L3 VPN service provider.
IP|Eth|L2TPv3|IP| something to provider ---> IP|Eth|L2TPv3|IP|MPLS --- other side.
Hope to help