WSL2 is running a VSCode server, exposes a port to the host and the VSC client from the host connects to it. In theory you could also run the VSCode Server on a remote machine.
I think the "Remote-SSH" plugin is a better fit for a comparison though, but @vital101's comment is not wrong.
I think the "Remote-SSH" plugin is a better fit for a comparison though, but @vital101's comment is not wrong.