16.4.1.23 Replication of the mysql System Database

MySQL 5.1.14 and later.  Data modification statements made to tables in the mysql database are replicated according to the value of binlog_format; if this value is MIXED, these statement are replicated using the row-based format. However, statements that would normally update this information indirectly—such GRANT, REVOKE, and statements manipulating triggers, stored routines, and views—are replicated to slaves using statement-based replication.

MySQL 5.1.13 and earlier.  User privileges are replicated only if the mysql database is replicated. That is, the GRANT, REVOKE, SET PASSWORD, CREATE USER, and DROP USER statements take effect on the slave only if the replication setup includes the mysql database.