It will do a soft match:
When you install Azure AD Connect and you start synchronizing, the Azure AD sync service (in Azure AD) does a check on every new object and tries to find an existing object to match. There are three attributes used for this process: userPrincipalName, proxyAddresses, and sourceAnchor/immutableID. A match on userPrincipalName and proxyAddresses is known as a soft match. A match on sourceAnchor is known as hard match. For the proxyAddresses attribute only the value with SMTP:, that is the primary email address, is used for the evaluation.
P.S. You can't use a .local for the on-prem UPNs. They have to be a valid domain suffix registered in Azure.