It is taking the value of hs_id from the outer query.
It is perfectly valid to have a query that doesn’t project any columns from the selected table in its select list.
For example
select 10 from HotelSupplier where id = 142
would return a result set with as many rows as matched the where clause and the value 10 for all rows.
Unqualified column references are resolved from the closest scope outwards so this just gets treated as a correlated sub query.
The result of this query will be to delete all rows from Photo where hs_id is not null as long as HotelSupplier has at least one row where id = 142 (and so the subquery returns at least one row)
It might be a bit clearer if you consider what the effect of this is
delete from Photo where Photo.hs_id in (select Photo.hs_id)
This is of course equivalent to
delete from Photo where Photo.hs_id = Photo.hs_id
By the way this is far and away the most common “bug” that I personally have seen erroneously reported on Microsoft Connect. Erland Sommarskog includes it in his wishlist for SET STRICT_CHECKS ON