What is Linux from Scratch?
Linux from Scratch (LFS) is not a Linux distribution in the sense of SuSE and co. LFS is simply a book, which you can read online, download in different formats or order as a printed copy of. The purpose of that book is to show you a way (there are more than only one way) to build a complete linux system from source. Thus you can not only have the newest components and the biggest possible influence on your system but, since linux is openSource, this can be considered the true way of installing linux. In any case, you will learn a lot of it.
How it is done?
Before you can build an LFS system, you need a running linux with some standard development stuff installed. Then you assemble the packages from its original locations or the LFS server. If you have them all together you start building a nested second system, a temporary one, the so called toolchain. This system will then be the new development platform for bulding your true new LFS system. After your system is installed (and the book leaves you alone) you start configuring it to your own taste and then - with the guidance of the "Beyond LFS" (BLFS) book - to install the software you want.