Mostly client-side validation. You only know of the contracts you are involved in, and you validate the state that concerns you yourself (e.g. if you receive an asset, you verify the history of the coins by going back through the state transitions).

Bitcoin L1 is used as an ownership layer and to commit for state transitions. But these transitions can also happen in a Lightning channel.

They just released rgb.tech if you wanna take a look, but for more advanced details I'd recommend rgbfaq.com.