Sorry Dabbles, but we don't know. No one from Tesla has said "When you press the record button during FSD Beta here is what happens:" and then says exactly what data from the systems is sent, and how Tesla processes that data and learns from it. t3sl4drvr had a nice summary above that seems logical, but it's still a guess. Tesla's FSD and AP programs are not open-source, so they will likely never tell us how they do things - that would be a massive breach of trade-secrets and let competition duplicate and catch up fast. We may get hints, and piece together information from tweets, news articles, and release notes, to try to form a picture of how everything works, but in the end it's still just a guess.
If you, for some reason, know things for certain that the rest of us don't, please let us know how the system works, where the flaws are, and how to fix them. I'm sure Tesla would pay you 6 figures to walk in and solve the problems.