Yes, the game data (.gcm) is inside the disc (or rather, "on" the disc). Each game then has multiple files in that data (Such as models, textures, sound, music, etc). Basicly Anything you will find in a computer game, will be found inside that main file.
Just like a .zip file is a compressed file with lots of information, a .gcm file is a compressed file with a whole game inside it. Of course, ya can't decompress a .gcm file, but rather open it.