Propeller shaft seals work by allowing the prop shaft to both exit the boat and rotate while at the same time keeping the water on the outside. The shaft seal also lubricates the shaft (not unlike a stuffing box) as it exits the boat.
Most propeller shaft seals consist of a housing with O ring lip seals and or face seals. Seals fall into two main categories – face seals and lip seals. Both types use an articulated rubber sleeve to keep the water out, but face seals use a collar, clamped to the shaft, that bears upon a surface on the end of the articulated hose. Face seals compress a fixed bearing against a collar attached to the shaft. A small amount of water forms on the interface between the stainless and the carbon, lubricating the seal. An attached hose connects the fixed bearing to the stern tube.
The Norscot dripless propeller shaft seal does this same job with only 3, heavy-duty lip seals. Those seals keep your shaft bathed in ATF lubricating it while keeping seawater out allowing your shaft to spin freely.