Some of the documentation (perhaps most of it) for a package is in the source files awaiting extraction. The rest of the documentation for the package is in the lal/packages/mypackage/doc/ directory. How does it all get pulled together to make a coherent document? The short version of the explanation is that all the necessary files either exist in, or are copied to, or are linked to the directory lal/doc/autodoc/, then LATEX is run in the autodoc/ directory and important results are moved back. You can see the specifics of how this happens (and how to modify it for your own use) if you examine the contents of the Makefile.am's in the various doc/ directories.
When you type make dvi during the installation, a chain of events takes place. First, the laldoc parser is run in each source directory (src, include and test) in all the packages. The documentation snippets are culled out of the source files and stuffed into files in /lal/doc/autodoc directory. When this is complete, the stand-alone documentation is built one directory at time. First, links from the .tex, .eps and .pdf files to the autodoc directory are established. Then the main.tex file is copied from the package's /doc directory to the autodoc directory. Then main.tex is LATEXed (actually, we run pdflatex). When this is complete, main.pdf and main.tex are moved back the package's doc directories. This is repeated for each package.
After the documentation for the individual packages is built, then the comprehensive documentation is built in essentially the same way. The file /lal/doc/lsd.tex is copied to the autodoc directory and LATEX (pdflatex) is run on it. Then lsd.tex and lsd.pdf are moved back to the doc directory.