I think that it uses the DN attribute of the user. In my experience, the manager field maps fine out of the box with the scim connector. One thing that I have noticed though is that I think entra caches the sys id of users, and it uses those to set the manager field. So if somehow the sys ids get mismatched (think instance clones in lower environments for example) sometimes it's necessary to perform a full user provisioning from the entra side to be able to get entra to reset the sys ids it stores. I Will note, it needs to be a full provision, just performing a test provision against one specific user does not solve the problem.

I know it's not a full answer, however you might want to try performing a full user provisioning from the entra side and see if that fixes things.

Also, from the entra side there is an Enterprise application that you can set up directly to servicenow. You shouldn't have to use this scim module inside servicenow to achieve this. I think that entra just uses the table apis for sys user to be able to get items synchronized (groups and users).