questions about how does Time Machine actually store files ?

I want to make sure Im not missing anything important by bypassing the 'restore' function of the TM app.

Do not attempt to use the Finder to bypass or otherwise attempt to intervene with anything Time Machine does. Do not drag and drop files to its backup device.

To learn how to use Time Machine please read Back up your files with Time Machine on Mac - Apple Support.

If you find Time Machine too confusing to use, do not use it.

I am not trying to put INPUT into Time machine. I am using finder drag drop to take OUTPUT from Time Machine.

I understand. You can do that if you want, in that you won't alter the backup. In fact you can't alter a TM backup drive any more, but there may be cases in which older TM backups created prior to APFS are not write-protected the way new ones are. Furthermore, backups over a non-Apple network might use any variety of file storage systems over which they have no control.

It's just not the way TM is designed to work, and it doesn't improve upon anything.

... do i have to use the time machine restore function

Do that. That is how it is designed to work, and will work in all cases.

I am not looking forward to the day Apple decides to make TM backups completely unreadable, but as long as people insist upon attempting to improve the way it works that's where things are probably headed.

Question ? I thought Time Machine encodes your files incrementally?

I'm not sure what you mean by "encodes," but nothing is done to the files.

How the writing was done is dependent on if it is the legacy HFS+ format or APFS. But, the items should all appear to be a file or folder, and all of the files should appear in every backup folder.

The only way you could drag your files into the Time Machine drive is if it is the legacy HFS+ format (but they might have locked it down, too). APFS backup volumes are completely locked down so you cannot modify them at all.

Another change with APFS backups is it doesn't backup the system, only your data. So, you won't see any system files in the backup.

I want to make sure Im not missing anything important by bypassing the 'restore' function of the TM app.

Do you want to restore? It sounds like you just want to abandon Time Machine and manually back up your files.

If you want to restore, you should use Time Machine as it was intended, but you can drag files from the backup folders.

If you are not seeing all of your files in every backup folder, there is already something wrong with your backup, or you are accessing it from something that doesn't understand structure.