After vasectomy, where does the sperm go?
A vasectomy [...] is a contraceptive procedure in men in which the vas deferens, or sperm duct, is cut and the cut ends are sealed in order to prevent the transportation of sperm. Sperm is still produced, but does not leave the body. Vasectomy is usually done as a means of sterilization and is sometimes reversible.
(from http://urology.med.miami.edu/specialties/male-urologic-health/vasectomy)



When the vasectomy is complete, sperm cannot exit the body through the penis. Sperm are still produced by the testicles, but they are soon broken down and absorbed by the body. Much fluid content is absorbed by membranes in the epididymis, and much solid content is broken down by the responding macrophages and re-absorbed via the blood stream. Sperm is matured in the epididymis for about a month before leaving the testicles. After vasectomy, the membranes must increase in size to absorb and store more fluid; this triggering of the immune system causes more macrophages to be recruited to break down and re-absorb more solid content.
http://en.wikipedia.org/wiki/Vasectomy



A vasectomy only blocks sperm and does not affect your sexual drive, your ability to have an erection, orgasm or ejaculation or your ability to have and enjoy sex. Sperm is only a small fraction of the total liquid in your semen(almost 4-5 %). The amount of fluid, intensity – even color and texture – does not appear to change when sperm is absent.
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The body absorbs unused sperm cells normally – whether or not you’ve had a vasectomy. After the procedure, the testicles will continue to produce sperm, but they will not leave the body in the semen. They dissolve and are simply and naturally absorbed by the body.
(from http://urology.med.miami.edu/specialties/male-urologic-health/vasectomy)



Sperm are produced in the testicles.  They are stored and reach maturation in the epididymis, a tightly coiled, muscular tube that is 15 to 18 feet long and leads into the vas deferens.   The muscle of the epididymis and the vasdeferens contract to propel the sperm through these structures and into the urethra at the base of the penis so the sperm eventually can fertilize an egg.
http://vasectomyreversalcenterofamerica.com/microsurgical-vasectomy-reversal/faqs/

Sperm are produced in the seminiferous tubules of the testes, and this does not change. A vasectomy does not affect the function of the testes. It is a physical separation of the vas deferens from each testis, so that the sperm cells cannot be ejaculated. However, the rest of the semen, which is made in the seminal vesicles behind the bladder and which is stored in the prostate, is ejaculated so the male reproductive experience will not change. He can still ejaculate, but there will be no sperm cells in the semen, so there can be no fertilization of an egg cell during intercourse.