How does Airdrop actually work ?

There is an argument in my household about how Airdrop actually works. Can someone who knows please shed some light. We need to transfer a large volume of photos from an iPhone 7 Plus to an iPad. If Wifi and bluetooth are active on both devices, would the photos be transferred in any way using the iCloud for transferring and/or storage of the photos once they have been moved across. On faction believes this operation will potentially use a huge amount of iCloud data storage and the other faction says it will not. There's much wonga and kudos riding on this so please do not answer if you don't know for SURE. Thanks.