First: The only distribution I have any practical experience with is Debian.
The source code for the kernel, when downloaded and installed, will normally reside in a subdirectory of /usr/src. The subdirectory will carry the name of the kernel version, e.g. 'linux-2.6.26'. As kernel development proceeds you may choose to download the source code for a newer version, which will then be put in another subdirectory, e.g. 'linux-2.6.27'.
When you choose to build a new kernel from the source, you create a symbolic link to the subdirectory with the source code for the kernel version you wish to build, like so:
ln -s /usr/src/linux-2.6.26 linux
Now you have a directory named /usr/src/linux and you don't need to worry about getting version names mixed up. When you decide to build a newer version all you do is delete the symbolic link:
and then create a new symbolic link to the kernel source directory of your choice.
Of course, you have to actually download and install the source code first. It doesn't automatically get installed (in Debian, at least).
Now, the book passage you refer to is basically saying:
"Don't mess with kernel source in the directory where you keep the source that will actually be compiled and built. Do the dirty work in your home directory so you're sure you don't mess up your system with some potentially bad code. Always be sure you have the original and untouched code available in /usr/src/linux."
Hope this helps!