I have a tar.gz file of 32 GB. I was trying to extract specific folders from it so I listed the contents with the following command to view the files structure:

tar -tvf file.tar.gz > files.txt

It seems to be taking forever to list all the files. My question is does the -t flag extract the files as well? I know it doesn't extract on the disk but the amount of time it is taking makes me wonder if it actually process them in some sort of a buffer.

tar.gz files do not have an index. Unlike zip or other archive formats it is not trivial nor cheap to obtain a list of the contained files or other metadata. In order to show you which files are contained in the archive, tar indeed needs to uncompress the archive and extract the files, although in the case of the -t option it does so only in memory.

If a common pattern in your use case is to list the contained files in an archive, you might want to consider using an archive format that can add a file index to the compressed file, e. g. zip.

Perhaps you also want to take a look at the HDF5 format for more complex scenarios.

Measurements

I just had to do some measurements to prove my answer and created some directories with many files in them and packed them which both, tar czf files#.tgz files# and zip -r files#.zip files#.

For the tests I ran the unpacking command twice each time and took the result of the second run, to try to avoid measuring disk speed.

Test 1

Directory files1 containing 100,000 empty files.

$ time tar tzf files1.tgz >/dev/null
tar tzf files1.tgz > /dev/null 0,56s user 0,09s system 184% cpu 0,351 total
$ time unzip -l files1.zip >/dev/null
unzip -l files1.zip > /dev/null 0,30s user 0,34s system 99% cpu 0,649 total

zip is slower here.

Test 2

Directory files2 containing 5,000 files with 512 bytes of random data each.

$ time tar tzf files2.tgz >/dev/null
tar tzf files2.tgz > /dev/null 0,14s user 0,03s system 129% cpu 0,131 total
$ time unzip -l files2.zip >/dev/null
unzip -l files2.zip > /dev/null 0,03s user 0,06s system 98% cpu 0,092 total

Still not convincing, but zip is faster this time.

Test 3

Directory files3 containing 5,000 files with 5kB of random data each.

$ time tar tzf files3.tgz >/dev/null
tar tzf files3.tgz > /dev/null 0,42s user 0,03s system 111% cpu 0,402 total
$ time unzip -l files3.zip >/dev/null
unzip -l files3.zip > /dev/null 0,03s user 0,06s system 99% cpu 0,093 total

In this test it can be seen that the larger the files get, the harder it is for tar to list them.

Conclusion

To me it looks like zip introduces a little overhead that you will notice only with many very small (almost empty) files, whereas for large numbers of larger files it wins the contest when listing the files contained in the archive.