The answer is that we do not. Our muscles do. This answer may not be scientific, but it is what we call it, and it is how it feels. It is, for example, next to impossible for us to remember our movements while sitting in a chair. It is a uniquely physical kind of memory.
Dancers do, of course, eventually forget steps.
When I choreograph I've learned that I can retain newly created material for about a day. By the end of the following day, holes begin to form. I could use a notation system to plot out exactly what I have done, or I could simply take some descriptive notes on the movements. Alternatively, I could pull out a video camera. But the easiest and fastest way to retain the material is just to run through the damn thing every day or so.