In the backup repository, logs are stored as .VLB files (Veeam proprietary format) co-located with corresponding SQL Server VM backups (.VBK/.VIB/.VRB files) in the repository folder (default is C:\backup\<SQL_server_VM_backup_job_name>). The backup chain metadata file is also stored in that folder as the .VBM file.
By default, log backups retention policy is set to keep the number of restore points in accordance with the corresponding image-level backup of SQL Server VM. This allows you to have both image-level backup and all the necessary log backups at hand when you need to restore your database from VM backup to a desired state – database will be restored to the closest point before selected moment, and transaction log replay will then bring it to the desired state.
When a database restore point is removed due to VM backup retention settings, the corresponding chain of log backups is removed, too.
Another option allows you to keep only last <N> days. This retention setting can be used, for example, if you plan to save on storage space, saving log backups for the last few days – to be able to restore to some recent database state.
If using this option, make sure that your SQL Server backup retention and log retention policies are consistent, so that corresponding restore point is always preserved - otherwise the log replay will not be possible due to the database files missing.