Yes, the destination will be the value of the Physical Path setting.
I think the setting that will be of value to you is the File comparison method. It indicates the algorithm by which comparisons will be made to determine which files, if any, should be updated by the package.
This link is to a blog post in which the Timestamp and Checksum algorithms are discussed. I have included a portion of this post below.
Timestamp instead of checksum
In Octopus 3.0 we decided to make
Checksum the default (and only choice) for syncing files with
WebDeploy. Using checksum we would only deploy files which had
actually changed, without needing any special configuration. This
reduces the time and bandwidth required for subsequent deployments to
the same web app. This works really nicely for moderate sized
applications but, as we discovered, becomes prohibitively slow and
unreliable for large applications.
If you find yourself in this situation you can switch to using
Timestamp for file comparison instead of Checksum using Octopus Deploy
3.3.3 or newer.
Timestamp
If you have any existing Azure Web App steps you will need to update
them to use timestamp and create a new release. Any new Azure Web App
steps you create will use timestamp by default, but you can always
switch to checksum if that suits your needs better.
If you prefer checksum, we are planning to upgrade to
Microsoft.Web.Deployment.3.6.0 which has several bug fixes for
checksum comparisons.
Preserving timestamps
The downside with using timestamps for file
comparison is reliability - you can easily get false-positives -
that's why checksum is so attractive. If you are using NuGet packages
the timestamp of your files will be lost when they are unpacked
meaning every file appears to be newer and will be uploaded regardless
of whether it has changed - more detail. To work around this, consider
using zip packages - we have automated tests proving the timestamps
are preserved end-to-end through your deployments.