How $simulation work with $estimation

Dear NMusers, I wonder how does $Simulation work with $Estimation in NONMEM exactly? The manual says, NONMEM will simulate DVs and replace the original DVs based on the parameter initial values. But the initial values are not final estimates. Does the simulation based on initial values make sense? Do $Estimation and $Simulation run alternatively? The $Simulation generates a set of data based on which the parameters are estimated? And then the predictions are made on the estimated parameters? A little confused. Appreciate any comment. Jun