The filter rules allow for flexible selection of which files to transfer (include) and which files to skip (exclude). The rules either directly specify include/exclude patterns or they specify a way to acquire more include/exclude patterns (e.g. to read them from a file).
As the list of files/directories to transfer is built, rsync checks each name to be transferred against the list of include/exclude patterns in turn, and the first matching pattern is acted on: if it is an exclude pattern, then that file is skipped; if it is an include pattern then that filename is not skipped; if no matching pattern is found, then the filename is not skipped.
Rsync builds an ordered list of filter rules as specified on the command-line.