How does Unity handle normal maps internally?

Update:

At the time of writing, Unity uses only the alpha and green channel for some normal mapping, storing the x fraction in alpha and the y in green. See Wolfram's answer for details.

Here is the relevant code. It is crude, but seems to produce adequate results. currentBuffer is an array of integers which acts as a hightmap.

 for (int row = 1; row < pixelsY - 1; row ++){
     for (int column = 1; column < pixelsX - 1; column ++){
         int pos = (row * pixelsX) + column;
         byte x = (byte) (127 + (((currentBuffer[pos - 1] 
             + currentBuffer[pos + 1])/4) >> intensityShift));
          byte y = (byte) (127 + (((currentBuffer[pos - pixelsX] 
             + currentBuffer [pos + pixelsX])/4) >> intensityShift));
         nmTemp[pos] = new Color32 (0,y,0,x);        
     }
 }

Below is a screen shot of a scene using a normalmap generated using the above code to simulate the ripples in a sink. The shader is Unity's built-in Transparent/Bumped specular.

I am working on a procedurally generated and updated normal map. I have been able to create the texture during runtime and update it every frame. However, the shader is rendering the normal map is in a similar way to those that aren't imported specifically as normal maps in the editor.

A texture format for normal maps doesn't seem to exist in TextureFormat enumeration and I am assuming that x, y and z in tangent space don't correspond to r g and b in the texture's colour values. Does anyone know how unity uses the r g b and a properties of Color when dealing with normal maps?