This process is described in section 7.6 of the EJB spec which states:
A [stateful] session bean instance�s life starts when a client invokes a create<METHOD>(...) method on the session bean�s home interface. This causes the container to invoke newInstance() on the session bean class to create a new session bean instance. Next, the container calls setSessionContext() and ejbCreate<METHOD>(...) on the instance and returns the session object reference to the client. The instance is now in the method ready state.
Is it more clear? Don't hesitate otherwise