Throughout this document I will assume that you have stored all the packages you have downloaded somewhere in $LFS/usr/src.
I use the convention of having a $LFS/usr/src/sources directory. Under sources you'll find the directory 0-9 and the directories a through z. A package as sysvinit-2.78.tar.gz is stored under $LFS/usr/src/sources/s/ A package as bash-2.04.tar.gz is stored under $LFS/usr/src/sources/b/ and so forth. You don't have to follow this convention of course, I was just giving an example. It's better to keep the packages out of $LFS/usr/src and move them to a subdirectory, so we'll have a clean $LFS/usr/src directory in which we will unpack the packages and work with them.
The next chapter contains the list of all the packages you need to download, but the partition that is going to contain our LFS system isn't created yet. Therefore store the files temporarily somewhere where you want and remember to copy them to $LFS/usr/src/ when you have finished the chapter in which you prepare a new partition (chapter 4).