A transport zone controls which hosts a logical switch can reach. It can span one or more host clusters. Transport zones dictate which hosts and, therefore, which VMs can participate in the use of a particular network.
A Transport Zone defines a collection of hosts that can communicate with each other across a physical network infrastructure. This communication happens over one or more interfaces defined as Virtual Tunnel Endpoints (VTEPs).
If two transport nodes are in the same transport zone, VMs hosted on those transport nodes can "see" and therefore be attached to NSX-T logical switches that are also in that transport zone. This attachment makes it possible for the VMs to communicate with each other, assuming that the VMs have Layer 2/Layer 3 reachability. If VMs are attached to switches that are in different transport zones, the VMs cannot communicate with each other. Transport zones do not replace Layer 2/Layer 3 reachability requirements, but they place a limit on reachability. Put another way, belonging to the same transport zone is a prerequisite for connectivity. After that prerequisite is met, reachability is possible but not automatic. To achieve actual reachability, Layer 2 and (for different subnets) Layer 3 networking must be operational.
A host can serve as a transport node if it contains at least one NSX managed virtual distributed switch (N-VDS, previously known as hostswitch). When you create a host transport node and then add the node to a transport zone, NSX-T installs an N-VDS on the host. For each transport zone that the host belongs to, a separate N-VDS is installed. The N-VDS is used for attaching VMs to NSX-T logical switches and for creating NSX-T logical router uplinks and downlinks.