Password Sync doesn't use the traditional token-sharing mechanisms AD FS uses;

instead, it pushes a digest of the on-premises Active Directory password hash.

Although credentials are pushed into Office 365's back-end Azure Active Directory,
the plain-text password never is. You can't use the digest of the password hash to
access on-premises resources.

Passwords are kept safe, giving organizations the benefits of removing a dependency
on AD FS without compromising security.