I was going to get into another layer and Jason did. I lifted this from his site (above):
What OTV does is that it allows you to connect two L2 domains that are separated by a L3 network. Basically, it’ll encapsulate Layer 2 traffic inside an IP packet and ship it across the network to be let loose on the other side. In this way you can make two logically separated data centers function as one large data center. The beauty of OTV is that it does away with a lot of the overly complicated methods we previously used for this sort of thing. It’s really, really simple. The only catch is that you need Nexus 7000s to do it today. How simple is it? Here is all the configuration you need on one switch in your OTV mesh:
otv advertise-vlan 100-150
otv external-interface Ethernet1/1
otv site-vlan 100
otv group-address 126.96.36.199 data-group-range 188.8.131.52/32
That’s six lines, including a description line. Basically, you enable OTV and assign an external interface. The switch, like all good little switches, keeps a MAC table for switching frames but for those MACs on the other side of the L3 network it just keeps a pointer to the IP of the far end switch instead of an interface. It knows that when a frame destined for a MAC address on another switch arrives to encapsulate it in to an IP packet and forward it out. The switches all talk to each other and exchange MAC information so they know who is where. This communication of MAC information is handled via a multicast address. Very simple, very elegant. All done without the headaches of other tunneling or VPN technologies.