The oscillator is crystal controlled to give a stable frequency.
A high frequency is used to keep the size of the crystal small.

The divide by 250 gives an output of 128 pulses per second.

These are fed to the first counter/divider which divides by 128 to give a pulse every second.
It counts these pulses, in binary, up to 59 seconds.
The count is shown on the first 7 segment display.
Since the output from the counter is in binary form, it is converted to suit the display by the decoder.
When the count and display reaches 59 seconds, it resets to zero on the next pulse.

The one second pulses are also sent to the next divider/counter which divides by 60 to give one pulse every minute.
These pulses are counted and displayed as minutes.
When the count and display reaches 59 minutes and 59 seconds it resets to zero on the next pulse.

A pulse every minute is fed to the final divider/counter.
This divides by 60 to give one pulse every hour.
These pulses are counted and displayed as hours.
When the count and display reaches 23 hours 59 minutes 59 seconds, the counters and display resets to zero on the next pulse.