How does the team know what to work upon during the iteration

Based on the discussions during iteration planning, team members agree on what each would work on.

Explanation:

Iteration can be defined as the way in which a process is been repeated in order to generate a possibly outcomes and this occur in a situation where the sequence will approach some end point in which each repetition of the process will be a single iteration while the outcome of each iteration will then be the starting point of the next iteration.

Therefore the team know what to work upon during the iteration Base on the discussions during iteration planning in which the team members agree on what each of them would work on.

During the iteration planning, the team collectively make a decision on how much of the backlog actually they will commit to the iteration in which the committed backlog then is taken to the delivery during the next iteration which is why the goals or objectives of the iteration get determined on the basis of the work committed.