When you first turn on your computer it tests itself to make sure everything is in working order. This is called the ``Power on self test''. Then a program called the bootstrap loader, located in the ROM BIOS, looks for a boot sector. A boot sector is the first sector of a disk and has a small program that can load an operating system. Boot sectors are marked with a magic number 0xAA55 = 43603 at byte 0x1FE = 510. That's the last two bytes of the sector. This is how the hardware can tell whether the sector is a boot sector or not.
The bootstrap loader has a list of places to look for a boot sector. My old machine looks in the primary floppy drive, then the primary hard drive. More modern machines can also look for a boot sector on a CD-ROM. If it finds a boot sector, it loads it into memory and passes control to the program that loads the operating system. On a typical Linux system, this program will be LILO's first stage boot loader. There are many different ways of setting your system up to boot though. See the LILO User's Guide for details. See section LILO for a URL.
Obviously there is a lot more to say about what PC hardware does. But this is not the place to say it. See one of the many good books about PC hardware.
The machine stores some information about itself in its CMOS. This includes what disks and RAM are in the system. The machine's BIOS contains a program to let you modify these settings. Check the messages on your screen as the machine is turned on to see how to access it. On my machine, you press the delete key before it begins loading its operating system.
A good way to learn about PC hardware is to build a machine out of second hand parts. Get at least a 386 so you can easily run Linux on it. It won't cost much. Ask around, someone might give you some of the parts you need.
Check out, download compile and make a boot disk for Unios. (They used to have a home page at http://www.unios.org, but it disappeared) This is just a bootable ``Hello World!'' program, consisting of just over 100 lines of assembler code. It would be good to see it converted to a format that the GNU assembler as can understand.
Open the boot disk image for unios with a hex editor. This image is 512 bytes long, exactly one sector. Find the magic number 0xAA55. Do the same for the boot sector from a bootable floppy disk or your own computer. You can use the dd command to copy it to a file: dd if=/dev/fd0 of=boot.sector. Be very careful to get if (input file) and of (output file) the right way round!
Check out the source code for LILO's boot loader.