Hello @Khushi Gupta ,
In addition to what @Cristian SPIRIDON has wrote, if you are referring to the azure VM restores method in the question, then staging location is used in replace existing disks on the VM type of restore. During restore, azure backup service replaces existing disks on the original VM with the restored disks. Azure Backup takes a snapshot of the existing VM before replacing the disk and stores it in the staging location you specify. Existing disks connected to the VM are replaced with the selected restore point.
The snapshot is also copied to the Recovery Services vault through data transfer, as a background process. However, once the snapshot phase is completed, the replace disks operation is triggered. After the replace disk operation, the disks of the source Azure VM are left in the specified Resource group for your operation and the VHDs are stored in the specified storage account. You can choose to delete or retain these VHDs and disks.
For more details you can refer to the following link, https://learn.microsoft.com/en-us/azure/backup/backup-azure-arm-restore-vms
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