Sherlock gathered his clues and then formulated a working hypothesis. As new clues came in he would modify his hypothesis as needed. His hypotheses gave him direction for what steps he needed to take next.
Here is a very simple example. Let’s say John Q. Citizen was living with his parents in Perry County, Mississippi in 1880. His soon to be wife Mary Ann Smith was living with her parents in neighboring Marion County. In 1900, you find the married couple living together in Marion County. You know that it is more common for a couple to marry in the bride’s home county than the groom’s so your working hypothesis is that they most likely married in Marion County. You now have a direction to search. You search the Marion County marriage records but come up short. Your new hypothesis is that they married in Perry County.
“His extreme love of solitude in England suggests the idea that he was in fear of someone or something, so we may assume as a working hypothesis that is was fear of someone or something which drove him from America.” [Holmes to Watson, "The Five Orange Pips"]
“Well, we will take it as a working hypothesis for want of a better.” [Holmes to Watson, "The Man with the Twisted Lip"]
“Let us take that as a working hypothesis and see what it leads us to.” [Holmes to Watson, "Silver Blaze"]
“Well, we can adopt it as a working hypothesis and then see how far our difficulties disappear.” [Holmes to Inspector White Mason, "The Valley of Fear"]
“Well, now, Watson. Let us judge the situation by this new information…. All of our reasoning seems to point that way. At any rate, we may take it as a hypothesis and see what consequences it would entail.” [Holmes to Watson, "Wisteria Lodge"]
“At least we may accept it as a working hypothesis.” [Holmes to Watson, "The Devil’s Foot"]
“One forms provisional theories and waits for time or fuller knowledge to explode them.” [Holmes to client Robert Ferguson, "The Sussex Vampire"]