Throughout this document, I will assume that all the packages that were downloaded are placed somewhere in $LFS/usr/src.
I use the convention of having a $LFS/usr/src/sources directory. Under sources, I have the directory 0-9 and the directories a through z. A package like sysvinit-2.78.tar.gz is stored under $LFS/usr/src/sources/s/. A package like bash-2.04.tar.gz is stored under $LFS/usr/src/sources/b/, and so forth. This convention does not have to be followed, of course; I was just giving an example. It's better to keep the packages out of $LFS/usr/src and move them to a subdirectory, so we'll have a clean $LFS/usr/src directory in which we will unpack the packages and work with them.
The next chapter contains the list of all the packages that need to be downloaded, but the partition that is going to contain our LFS system isn't created yet. Therefore, the files are temporarily stored somewhere else (it's up to you to decide where this 'else' is) and later moved to $LFS/usr/src/ when the chapter in which the new partition is prepared has been finished.