A Facebook custom audience is an ad targeting selection that’s defined by list of e-mails or phone numbers. Custom audiences let advertisers reach Facebook users who are subscribed those lists.
If you want to learn more about using custom audiences read How to Target Your Donors or Email Subscribers with Facebook Ads.
So, what does Facebook do with my emails?
Before you upload an e-mail list to create a custom audience, the list is “locally hashed on your system”, according to the custom audience terms. This just means that Facebook only use the emails that are already associated with a profile. Any unmatched emails are not used.
Also, because the data is hashed, you can’t see which Facebook users are in a custom audience.