How are CMD and ENTRYPOINT exec forms in a docker file parsed?

At a very low level, Linux commands are executed as a series of "words". Typically your shell will take a command line like ls -l "a directory" and breaks that into three words ls -l a directory. (Note the space in "a directory": in the shell form that needs to be quoted to be in the same word.)

The Dockerfile CMD and ENTRYPOINT (and RUN) commands have two forms. In the form you've specified that looks like a JSON array, you are explicitly specifying how the words get broken up. If it doesn't look like a JSON array then the whole thing is taken as a single string, and wrapped in an sh -c command.

# Explicitly spelling out the words
RUN ["ls", "-l", "a directory"]

# Asking Docker to run it via a shell
RUN ls -l 'a directory'
# The same as
RUN ["sh", "-c", "ls -l 'a directory'"]

If you specify both ENTRYPOINT and CMD the two lists of words just get combined together. The important thing for your example is that sh -c takes the single next word and runs it as a shell command; any remaining words can be used as $0, $1, ... positional arguments within that command string.

So in your example, the final thing that gets run is more or less

ENTRYPOINT+CMD ["sh", "-c", "jupyter", ...]
# If the string "jupyter" contained "$1" it would expand to the --ip option

The other important corollary to this is that, practically, ENTRYPOINT can't be the bare-string format: when the CMD is appended to it you get

ENTRYPOINT some command
CMD with args

ENTRYPOINT+CMD ["sh", "-c", "some command", "sh", "-c", "with args"]

and by the same rule all of the CMD words get ignored.

In practice you almost never need to explicitly put sh -c or a SHELL declaration in a Dockerfile; use a string-form command instead, or put complex logic into a shell script.