Does Microsoft Workflow Foundation keep all the workflow inside? Actually I am confused about what WF.net does?
Does it have database-like something for workflows? If yes, how can I keep my workflow in it; else what does it do exactly?
Could someone explain this or give some good-references for me?
Windows Workflow Foundation (WF) can be used either way. You can have a workflow entirely in memory, or you can have a long-running workflow that persists to storage (usually SQL Server) when it's idle.
See for example SQL Workflow Instance Store.
Assuming you're working with WF4 (highly recommended if your environment permits it), I'd recommend reading Pro WF: Windows Workflow in .NET 4.0 and working through the examples. It's more of a tutorial than a reference, and there are quite a few typos, but it covers most of the bases.