It doesn’t “know” anything. It’s just a signal that goes out in all directions but gets weaker with distance and gets blocked by stuff like walls and floors. If there signal is strong enough, a device can connect. It doesn’t just magically stop at some line. Think of it like 2 people talking in a house. If you’re in the same room, they can hear each other. If they’re in 2 different rooms with thin walls or separate sides of the house but with no walls in the way, they can still hear each other if they talk loud enough. If one is in the basement and one is on the 2nd floor, they probably can’t hear each other because there’s too much stuff in the way.
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