in side the sources directory
That looks correct. To elaborate, specified to gcc pass 1:
$LFS/sources holds the gcc-4.5.1.tar.bz2 package.
After uncompressing gcc-4.5.1.tar.bz2 enter the created gcc directory ($LFS/sources/gcc-4.5.1).
At this point you execute the mpfr, gmp and mpc commands.
The unpacking and renaming (moving) of the afore mentioned 3 packages are done from _inside_ the $LFS/sources/gcc-4.5.1 directory! Besides the gcc files and directories, you should now have 3 extra directories called:
If all went well, then you can precede to create and enter the build directory ($LFS/sources/gcc-build).
From within $LFS/sources/gcc-build you build gcc, starting with the ../gcc-4.5.1/configure --target=$LFS_TGT .....
Hope this clears things up.