This scenario is an alternate scenario to Azure AD Sync with password synchronization, which is usually considered for organizations that have concerns about using user password hashes outside their network. Instead, it uses an agent installed on an on-premises server to connect Azure AD to your domain controllers and perform the authentication process for the user.

The following figure shows this architecture, using an agent that receives the authentication request from Office 365:

The following figure shows the sign-on process of a user when connecting to Office 365 using Azure AD:

The following figure shows how the agent works in the process of registration:

The process of a user when signing on to Office 365 is shown in the following figure:

To learn more about Pass-through Authentication, continue reading at https://docs.microsoft.com/en-us/azure/active-directory/connect/active-directory-aadconnect-pass-through-authentication.