UPDATE
In brief: Your assumption is spot on - the JavaScript code will be returned and executed as expected.
A bit more detail: There's a touch of wizardry involved in this process.
Once the button is clicked, a JSON request is triggered to the create URL, specifying the format as 'js'.
The controller identifies the desired format as 'js', proceeds with running the create action, and then renders the corresponding template for that format - create.js.erb.
Rails discerns that a custom JSON request is needed due to the presence of the :remote => true option. This adds a data-remote=true attribute to the link element.
Subsequently, a handler defined in rails.js (link) is assigned to all elements with this data attribute, managing the remainder of the process.
Continuing from the Original Answer below
Rails harnesses a method known as Unobtrusive Javascript to connect specified handlers in .js files to their corresponding events seamlessly.
To delve deeper into this concept, check out this (particularly part 3) and also refer to this post.
Alternatively, you can embark on an enlightening journey by examining the inner workings of the rails.js file to gain insight into the enchanting mechanism at play :)