Here's a link to a macworld article where they explain pretty much everything you need to know better and faster than what I could've typed out! I didn't think I would like the service initially, but after deciding to go ahead with it, I'm very pleased to be able to match all my music by importing everything I have on my external hard drive and countless CD's, once imported and matched to itunes, I can then delete them off my computer, ipod or iphone,( to save room if need be) and then access them later from the iTunes cloud via a download to whichever device I am running at the time.
And to answer your specific question, your phone will have all the music you sync on it via the iTunes sync, however if it is not on your phone, but is stored in your cloud it will show on your phone with a little cloud and arrow pointing down so you can click that and download and listen. Then that song will be on your device unless you remove it.
Anyways here's the link:
iTunes Match: What you need to know | Macworld
Hope that helps!

