There are two type of parameter in CakePHP, you have passed parameters and named parameters. A passed parameter is as shown in your example and will be passed as part of the url.
http://example.com/controller/action/passed_param
echo $this->params['passed'][0] // 'passed_param'
http://example.com/controller/action/name:param
echo $this->params['named']['name'] // 'param'
I would recommend getting the parameters in your controller and calling model methods with them passed through.
Such as
$this->Model->find('all', array('conditions'=>array('id'=>$this->params['passed'][0])));
As to how it's working, you will want to have a look at your routes file. In your app/config/routes.php
you will find all the routing and which parts are passed.
The standard cake url format is usually as follows, as you'll see in the routes.
array('controller'=>'MyController', 'action'=>'MyAction', 'MyParam');
I can't seem to find a specific page in the book on Params, but have a google around for guides.