When the engine is not running water pressure will build up behind the pump and thus force its way past seal on the flushing tool. When the motor is running the pump will suck water and it will flow out of the engine in the normal way which includes the water that runs down the inside of the midsection in order to keep it cool. This water will exit the same way the exhaust gasses do i.e through the centre of the prop and/or out of the exhaust relief if you have an offshore midsection. Some water will also exit via the tell tail/s. It may not be as a strong jet due to the hose not being able to supply as much water as if the boat was in the water, or simply because the engine is at idle.
Here's a lovely video of my boat running on the hose!!!
http://www.mattyorke.com/images/other/millersboat.avi
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