There's two different concepts at play here:
- You Firefox Sync account
- The master password (the login manager)
Number 2 is independent of whether you use Sync or not. It's a password protection for the local storage of saved passwords.
It used to be that when you had a master password on a device, Sync would not synchronize saved passwords on that device.
This was changed around Firefox 34. Apparently now when your MP is unlocked it will sync the saved passwords to your account. When it's not unlocked it will silently do nothing unless you explicitly ask it to "Sync Now".
So think about the master password as a local-only protection, the synced data is already protected by other means on Firefox Sync's servers (your account credentials).
As pointed out by @Ben:
It's worth noting explicitly here that the synced passwords are not
just "protected" with your sync password; it's encrypted using them.
So be sure the sync password is strong! The other thing that means is
that you will lose any synced passwords if you reset your sync
password via "forgot my password", because Mozilla cannot decrypt them
without your sync password. But the assumption in that case is, that
you still have your local copy, so you should be OK
This applies to all sync data, not just passwords, and is thoroughly documented at Mozilla's GitHub.
If you want you can disable saved password sync from Sync's options.