It uses Nvidia Shadowplay to constantly record your gameplay but doesn't save any footage unless you activate the Instant Replay feature through the In-Game Overlay or by using the dedicated ...

You can also use the Replay feature to recall the last few seconds, which works with the Steam Overlay. That means that if a game supports the Steam Overlay, it supports Replay capture by default.

Thereafter, select the size of the Instant Replay overlay window. When done, click on the Overlay Position option and choose where you wish to have the In-Game Replay window positioned on the screen.