When you assign a value to a variable that still has an unknown type, its type will be inferred as being the one of the assigned value, so for example, if you write:

var s; s = "Hello World";

The type of s will be inferred to String.

In addition, if you assign the value of a variable that still has an unknown type to a variable that is of a known type, the type will also be inferred:

var s;
var t : String;
t = s;

Here, the type of s is inferred to String.

When you pass a variable to a function, its type is inferred as being the one expected by the function. For example, consider the following code:

class Main
{
static function print(s : String)
{
trace(s);
}
public static function main()
{
var t;
print(t);
type(t);
}
}

In this example, t is inferred as being of type String. Note that the type function will print a warning indicating the type of the t variable while compiling.