Why does drag-and-drop archive extraction from 7-Zip to Explorer use temp files?
7-Zip doesn’t know folder path of drop target. Only Windows Explorer knows exact drop target. And Windows Explorer needs files (drag >source) as decompressed files on disk. So 7-Zip extracts files from archive to temp folder and then 7-Zip notifies Windows Explorer about >paths of these temp files. Then Windows Explorer copies these files to drop target folder.
To avoid temp file usage, you can use Extract command of 7-Zip or drag-and-drop from 7-Zip to 7-Zip.