How to handle escrow and insurance over smart contract transactions?

I’ve just been introduced to the concept of decentralized marketplaces. Im confused about how a transaction can verify that product has been successfully received by the buyer. For example, buyer purchases a physical item from seller. Crypto is sent and held in some type of decentralized escrow service. Seller ships item to buyer. Buyer tries to cheat the system by saying the item was never received (even though it was). The funds in the escrow gets returned to the buyer. Buyer now has original crypto and item.

Since the physical item itself cannot also be placed on the blockchain and exists in the imperfect, real world, how can this be validated and insured? How is it kept in sync with the digital ledger?