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We have sharepoint on our local domain which is part of a forest. I seem to be able to add users from outside our local domain to sites etc even though our UPS is synced only to our local domain. This leads me to believe that they are independent entities but i was just wondering how this works? Can someone shed some light on this?

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SharePoint makes direct LDAP calls to Active Directory when configured with Windows auth. The UPA is only involved to pull additional details about the user if the user resides in the UPA after the LDAP call to Active Directory has already been made.

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User Profile subsystems works with AD in SharePoint to provide various functionalities (access, content tagging, etc). These two posts can provide some insights into it -

How user profile synchronization works in SharePoint 2010

User Profile Subsystem in SharePoint Server 2010

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