The regulator draws a current through R1 that sets the transistor Vbe, which in turn sets the collector current that is transmitted to the load. If the output voltage is too low, the 78XX draws more current, Vbe increases, and more current is supplied to the load. If the output voltage is too high, the transistor is turned down. Thus, the LM78XX controls the voltage, but only up to about (0.6 V / R1) goes through the regulator, the rest goes through the external pass transistor.