Trying to wrap my head around Azure AD, AD Sync and Connect etc...

Current infa is an on-prem file share server, exchange, and an Active Directory. I'm looking to move Exchange and AD to Azure AD/MS O365, but I want to maintain the File Share on-prem for now until this phase is complete then potentially move to Azure File Share or blob storage.

I've already established Azure AD, stood up a sandboxed on-prem AD Server 2019, and connected with AD Sync/Connect.

What I'm trying to understand more in-depth:

First, I noticed that when I create on-prem users it syncs to Azure, but if I create a user in Azure it doesn't sync to on-prem, I feel like I'm missing something. I checked the "on-prem sync enabled" on the active user, but I can't seem to change it. How does the hybrid model work and user auth etc, been going in circles with the MS docs.

Second, would it be better to join the file share to Azure or to on-prem?