I found this question interesting, so after some reading and a few tests, this is what I've been able to come up with:
The message comes in via the Internet Mail Service and transfers to the MTA. The MTA then attempts to deliver to the Information Store. The IS has no storage for the address, so it sends the message back. The message bounces back and forth until it is seen as a mail loop. On the server I tested, the message went back and forth 8 times before it "gave up". This took less thana minute. The system then generates a couple of events -- a 12071 and 4098. The 12071 event refers to an archive filename, but apparently the file is not archived, it is deleted, as no file with this name exists anymore on my system. You should see these events on your server, too, and can take a look at message tracking in the MTA, IS and IMS to reconstruct this as well.
This isn't terribly detailed as to how the message gets passed between the various queues (BTW, all messages pass throughqueues if only instantaneously) but it gives a rough idea. If you need even more detail, lots of reading is available on TechNet re: MTA routing and Exchange architecture.
HTH...