Social Activity Images Folder

Im considering to implement the social wall function on ours sites, but one doubt is: Where the images will be storage when user uploads? It is in a local folder on our server? Wich file is saved? Where is the folder that stores the files on our server located?

Furthermore, I would like to know if it is possible to configure external storage for files uploaded by users. Our fear is that the implementation of the functionality will increase the size of the stored files significantly and impact the performance of the site.