For those not familiar I will not recap VXLAN since I only quickly skimmed the IETF draft, plus there are lots of acronyms I have yet to learn.
To answer my friend's question:
If I understand correctly, VXLAN extends layer2 traffic over layer3. In order to send broadcast traffic VXLAN uses IP Multicast. A mapping of broadcast to multicast groups is established. Hosts (hypervisors) send upstream notifications to routers/switches notifying them of join/leave requests to the multicast groups. The hosts send these requests when VMs are available/not available on the host.
The IETF draft says there will be management of the IP multicast group by the switch/router via a management channel, notified by the VTEP (hypervisor).