You're pretty much right, the extra frames are "lost". This is basically why Vsync was invented. It will scale back the output to matchyour monitor's refresh rate. The issue here is that it can sometimes drop down, say to 55fps, even tho with Vsync off it might run at an average of 90fps. Generally you won't notice that but it's a bit odd.
There's a couple downsides to outputting way more FPS than you can display. The first is unecessary GPU usage. More power and heat going into it. The second and far more noticeable is screen tearing. Basically one part of the screen is being refreshed at a different time than something else, so you get a big line/tear through the screen.
Ideally, you run at your monitor's refresh rate, generally 60hz but like atotalnoob said they make 70, 75 and even 120hz (for 3D) monitors.