Nested subqueries work by running the inner query first to get a value. Then the outer query uses that value to filter or find matching rows. For example, to find employees in the Sales department, the subquery finds the Sales department's id. The outer query then selects employees with that department id. The execution flow starts with the outer query, pauses to run the subquery, gets the result, and continues. Variables like subquery_result hold the inner query's output, which the outer query uses to filter data. If the subquery returns no rows, the outer query returns no results. This step-by-step process helps build complex queries in manageable parts.