Our organization began with the Office 365 product and we have now installed an on-premise Domain Controller with AD DS. There are no users created in the on-premise AD yet. If I run AD Connect, will it create the users that currently on Office 365 on the on-premise AD?
No, AAD Connect will not create users that are on cloud to on premise.
You can manually create users that are created on cloud. Configure the UPN & mail attribute to be same as cloud username\email. This will do a soft match and your cloud users will get connected to On prem AD.
Your AD will then become the source of authority\primary.
Follow documentation here and ask if you have any doubts.