If I have network traffic between two VMs on the same Hyper-V host does the traffic actually ever leave the host server? How can I tell?
Yes, and in fact it is very efficient between parent OS and the VM's too.
The reason is that it setups up a virtual switch which all use and pass traffic that way without needing to go via the network cards/interfaces.
- From Understanding Network with Hyper-V, which is a great blog post on the topic