You need to produce what form or documents are requested by mail; a CD of the same is also acceptable as well. Yes, a Proof of Service that you provided these documents is also required.
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The answer depends on what the party who served ("propounded") the discovery request asked for, and what you can agree to. Many times, discovery requests will demand that the responding party provide originals for copying, but most attorneys know that that is more difficult than just sending copies, and many attorneys will agree to accept copies as long as the originals will be made available if requested.
Also, if there are hundreds of pages, the propounding party may not care to deal with that, and would actually prefer getting a CD or flash drive with all of the documents scanned onto it, especially since many offices are going 'paperless.' Usually, when I am going to produce a CD of documents instead of hard copies, I will simply ask the other side in an email if that is acceptable, and if they say 'yes,' I'll mail the CD. You can also ask if they will accept the documents through email. I have accepted that in the past as well.
As for the proof of service, you will still need to prepare written responses to the requests, and someone who is not a party to the case should serve that by an appropriate method, along with the proof of service. Usually, a hard copy is mailed, but if the other party agrees to email service or fax service, that may be acceptable as well.
Finally, discovery responses are not filed with the court.