In short, wp_nav_menu() calls upon the walk_nav_menu_tree() function and passes along the processed arguments (including the Walker_Nav_Menu instance to use, if provided).
walk_nav_menu_tree() invokes the the Walker_Nav_Menu::walk() method on the provided instance or on a new instance of the default Walker_Nav_Menu class if none was provided.
Walker_Nav_Menu::walk() iterates through nav menu items and contextually calls other relevant methods on the instance as necessary in order to convert the items to markup. In the case of Walker_Nav_Menu::start_el(), whenever beginning to construct the markup for an item.
Walker_Nav_Menu inherits it’s walk() method from the plain ol Walker class – see Walker::walk().