I think this page provides the best answer:

2. How Linux Keeps Track of Time

2.1 Basic Strategies

A Linux system actually has two clocks: One is the battery powered
“Real Time Clock” (also known as the “RTC”, “CMOS clock”, or “Hardware
clock”) which keeps track of time when the system is turned off but is
not used when the system is running. The other is the “system clock”
(sometimes called the “kernel clock” or “software clock”) which is a
software counter based on the timer interrupt. It does not exist when
the system is not running, so it has to be initialized from the RTC
(or some other time source) at boot time. References to “the clock” in
the ntpd documentation refer to the system clock, not the RTC.

The two clocks will drift at different rates, so they will gradually
drift apart from each other, and also away from the “real” time. The
simplest way to keep them on time is to measure their drift rates and
apply correction factors in software. Since the RTC is only used when
the system is not running, the correction factor is applied when the
clock is read at boot time, using clock(8) or hwclock(8). The system
clock is corrected by adjusting the rate at which the system time is
advanced with each timer interrupt, using adjtimex(8).

A crude alternative to adjtimex(8) is to have chron run clock(8) or
hwclock(8) periodically to sync the system time to the (corrected)
RTC. This was recommended in the clock(8) man page, and it works if
you do it often enough that you don’t cause large “jumps” in the
system time, but adjtimex(8) is a more elegant solution. Some
applications may complain if the time jumps backwards.

The next step up in accuracy is to use a program like ntpd to read the
time periodically from a network time server or radio clock, and
continuously adjust the rate of the system clock so that the times
always match, without causing sudden “jumps” in the system time. If
you always have a network connection at boot time, you can ignore the
RTC completely and use ntpdate (which comes with the ntpd package) to
initialize the system clock from a time server– either a local server
on a LAN, or a remote server on the internet. But if you sometimes
don’t have a network connection, or if you need the time to be
accurate during the boot sequence before the network is active, then
you need to maintain the time in the RTC as well.