Actually, it doesn't tell the linker where to find them - it tells the linker which ones to use. The example you've given tells the linker to use the "mingw32", "SDLmain" and "SDL" libraries. The "-l" at the beginning just means "link to this library."

I'm having problems seeing what exactly you don't understand. Is it specific to SDL, or you just want to know what "libraries" and "linking" is? Anyway, if you have installed SDL correctly, you will have the files SDL.a and SDLmain.a in your libraries directory(.lib extensions for other compilers). Those files contain already compiled code(binary) for SDL routines like SDL_SetVideo(). For example, you call SDL_SetVideo() from within your program, but where's the code for it? Not in "SDL.h", that contains only the interface, not the implementation. That's exactly what this line does. The compiler compiles your program, and then the linker links the result with the specified libraries so that the resulting .exe will run correctly.