You are learning grasshopper.
Orb almost got it right. A watercoolonh setup is always more or less a circle. generally it goes from most important hardware to least (picking up a bit more heat as it travels, you want the important stuff cooler). So it goes from a pump to your CPU, picking up any heat on the processing unit thusly warming the temperature just a bit. From there it cool whatever else you have hooked up. Generally it goes from there to the GPU (video card) and pulls any heat from that. Once its done cooling your components (you can also cool anything from power supply or memory to southbridge and hard drives) it goes to a radiator (heres what you missed orb) where the warm water is cooled down, THEN on to a resevior to get pulled in by the pump again. One big circle.
If you want to watch how it works, head over to www.3DGameman.com
and check out his video reviews section. He recently did a great 2 part review on the Danger Den kit that actually made me want one.