From there, it hits the MFT, finds the specific record for the file, loads the MFT record, and ultimately returns the FILE_OBJECT to the I/O Manager and it bubbles up the chain back to (presumably) Win32. The MFT is just a linear array of records, which include file and directories (directory records are just a record with directory = true, essentially).
Obviously simplified. Windows Internals will be your friend, if you want to know more.
[1] https://www.kernel.org/doc/html/latest/filesystems/path-look...
[2] I was under the impression that it could look up an entire path at once when I wrote my grandparent comment; it seems I was wrong, which on reflection makes sense given you can move directories.
[3] https://www.kernel.org/doc/html/latest/filesystems/path-look...