> Is the buffer here extra memory in addition to the input?
Yes.
> What about just an O(log N) size buffer?
That would effectively just be a constant sized buffer. Honestly O(log N) factors where N is the size of the input are overrated and are probably best seen as a constant factor. Like, even if you're sorting 16 gigabytes of 32-bit floats, log2 N is still just 32.