For any kind of vCenter platform, you need to have a vCenter database, but the question is how does your database size affect your vCenter performance.

If adequate resources are available for your vCenter database, then the supported versions of vCenter databases, such as Oracle and SQL, perform very well. However, you need to understand that a vCenter server task retention policy and higher performance statistics collection settings can increase the database size dramatically, which in turn will affect your vCenter server performance. But, the bundled database of either the vCenter server system or VCSA is a separate matter. The bundled database is intended for the evaluation of the vSphere software or supporting a small infrastructure of up to 20 hosts and 200 VMs. In this case, the vCenter database is collocated with the vCenter server instance. Logging level also affects the performance and size of the vCenter database.

Now when this is over, the next question is, should you place the vCenter server database in the same vCenter Management Server computer or on some other VM?

If you think your environment will grow beyond 20 hosts or 200 VMs, VMware recommends not to place the vCenter server database on the same system as the vCenter server.

It is not a matter of whether your vCenter server is physical or virtual, but removing the database from being collocated removes any possibility of resource contention between these two, except for network latency. If the vCenter server and database systems are virtual, separation means that either VM can be easily resized to accommodate current performance needs.

VMware bundled with the vCenter database is for supporting test systems or a small infrastructure. The built-in database is a PostgreSQL database for vCenter on Windows and VCSA 6.0 and above.