The synchronization happens within the Azure AD Connect tool and follows the steps described here:

• Sync cycle step 1: This is the first step where the process import users, groups, and contacts from source AD forest
• Sync cycle step 2: The second step is where the users, groups, and contacts are imported from Microsoft Online services through Autodiscover Web Services (AWS)
• Sync cycle step 3: This is the process where the users, groups, and contacts are exported, that do not already exist in Microsoft Online services

The following figure shows these steps for an environment that has on-premises email and a synchronized identity in a hybrid scenario with Exchange: