What he means is the difference between relative (referenced from your current working directory or $PWD) and absolute (such as /usr/src/linux or /tmp) paths. Instead, when you put in "temp" at the end of the mkisofs command you were telling mkisofs to put your image there. By using ".", which is a synonym for $PWD you tell it to use your current directory instead.
If I knew the command syntax for mkisofs I would have spotted that myself, but it's one of the very few utilites I'm scared to use directly because of all the options!
(I used to use xcdroast, now I use k3b.)