Any application saves its files in such a way it can be reloaded and display as it was. This means a lot of “internal” or formatting information has to be saved either.
A plain text app like NotePad needs and manages only the raw text. No extra information is saved and handled. The whole file is text data. What is strange in your description is Notepad doesn’t seem to check the file is really a plain text file (I’m not a Window$ user) before displaying to the user. Thus, it will show garbage when given a binary or non-text file. And this is quite devastating in this Unicode era because UTF-8, the most common Unicode encoding, has very strict rules about its varying length encoding of characters.
LO, Writer in particular, can save its data in two forms.
The most compact one is a set of directories (data types) containing files (individual data occurrence) compressed into a single OS file. This is the .odt flavour. The second one is intended for special purposes to human-readers. The overall content is the same but it is organized as a huge XML file where the data type dictionaries (and their contents) are intermixed with the annotated description of the text. This is the .fodt flavour.
If you want to have a look at how your styling and formatting is encoded, use the Flat XML ODF Text Document (.fodt) format of the save dialog. This creates a text version of the formatted document.
As a text file, you can display it with a text editor or manipulate it in a program reading text files. However, this format is not primarily intended to be routinely opened in text editors. Some “lines” are very long and overflow the usual line buffers. Modifying the file and saving it may damage it beyond repair. So if you intend to play tricks with the file, you’d better manager yourself file handling through a “page” mechanism.
In case you hope to understand how it works, read first the ODF standard.
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