In order to stake into Sherlock's staking pool, you must commit the funds to a lockup period. At launch, the lockup periods will be 6 months or 12 months.
The headline APY for each lockup period will be the same. Why? If you expect SHER token incentives to go down over time, then you may want to lock in 12 months worth of SHER tokens at today's rate. If you expect SHER token incentives to go up over time, then you probably want to lock in 6 months worth of SHER tokens now, and then restake your position at the higher rate later on. Sherlock generally expects the SHER token incentives to go down over time, which should incentivize a healthy mix of different staking periods.
After the lockup period has passed, a staker has the option to either unstake their position or restake their position. Either option will result in the owed SHER tokens being sent to the staker.
If a staker doesn't unstake within two weeks of the lockup period passing, they will get auto-restaked for 6 months. Auto-restakes are done by arbitragers who receive a portion of the stake's USDC in return for paying the gas to restake the position. The "reward" for an arbitrager increases slowly over the course of 1 week (after the initial 2 week period), until it reaches the max reward rate of 20% of a staker's USDC position. The SHER token rewards from the recent lockup period are still sent to the original staker, not the arbitrager.