Explanation

Box 1: a computer joined in the Active Directory domain
The Active Directory domain service stores passwords in the form of a hash value representation, of the actual user password.
Box 2: Stored in both Azure AD and in the Active Director domain
The Active Directory domain service stores passwords in the form of a hash value representation, of the actual user password.
To synchronize your password, Azure AD Connect sync extracts your password hash from the on-premises Active Directory instance.
References:
https://docs.microsoft.com/en-us/azure/active-directory/hybrid/how-to-connect-password-hash-synchronization