Can someone break down how localization file ( .mo, .po ) generation works?

I'm trying to grok `gettext`. Here's how I think it works - First you use some sort of po editor and tell it to scan a directory for your application, create these ".po" files, the application makes a po file for each file scanned which contains a string in a programming language, then compile them to binary mo files, to which `gettext` parses, and you call a method using a high level API such as `Zend_Translate` and specify you want to use `gettext`, it can be setup to cache translations and it just returns those. The part I'm really unclear about is how the editing of po files is done really, it's manual - right? Then when the compilation is done of course the application relies on the binary mo files. And if someone could provide useful linux applications for editing `.po` files I'd be grateful.