How Does Usps Mail Forwarding Work?

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How do they actually internally handle it? Is it scanned at the departure location and automagically routed, or does it get caught at the destination and then forwarded from there?
Bonus question: Is it possible to have a multiple-hop forward? For example, having address A forward to address B, then B forward to C.
Edit: Extra bonus question: Does the USPS scan the destination address using OCR?

Mail forwarding done using a computer database that is linked to a sorting machine, it can be done at the source of origin (the company sending the mail) a 3rd party sorting center (private company that sorts mail) or a USPS sorting center.
I worked for a major postal/mail equipment manufacturer for 13 years and never heard of a multi-hop forward.
And yes, sorting machines read the address on the mail using OCR, on older equipment it took multiple computers to process the OCR, on newer equipment it only takes one.

Sometimes. For all computer-printed addresses, OCR is accurate. If it is a handwritten address, they cannot use OCR. Images of the mail are sent electronically to a center in Indiana where ...
... humans actually read the mail and manually re-type the address so a barcode can be added to the mail. I forget what the rate of processing is, but the humans are typing crazy-fast.
Took a tour of a USPS processing facility once. Fascinating stuff.

For some reason I find it mind-boggling that all of the US's hand-written envelopes are processed by people in single center in Indiana. I'd love to see an IAmA from one of those folks.
Reminds me of a good Futurama quote:
"What I love most about the tentacle is that I don't need to move my bowels anymore. It's all handled by that family in Evanston."

To be fair, there may be other centers aside from the Indiana one that processes mail with humans. That was just the sorting center I went to in the Midwest. He may have mentioned other centers (2 or 3 more?), but I honestly can't remember.
But yeah, the volume they had to handle was amazing just for this one site.
Also, Evanston? It's funny how it processes crap in future Earth. Sounds more applicable to Gary.