Basically at the start of transmission a state machine calculates the peak deviation step steps. The steps are: 32/32, 31/32, 29/32, 25/32, 21/32, 15/32, 9/32, 3/32, 3/32, 9/32, 15/32, 21/32, 25/32, 29/32, 31/32, 32/32.
So if the peak deviation was 32kHz & we are transitioning from a space to a mark then the intermediate peak deviation value would be:
-32kHz, -31kHz, -29kHz, -25kHz, -21kHz, -15kHz, -9kHz, -3kHz, 3kHz, 9kHz, 15kHz, 21kHz, 25kHz, 29kHz, 31kHz, 32kHz.
The intermediate peak deviation is then added to the LO.
Just to reiterate the intermediate steps are only calculated once, upon initialization. Then the state machine running at 16x the baud rate adds the intermediate peak deviation values to the LO.