Connecting to SQL database

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.NET2.0

C#

SQL

.NET

database

I am reading a book in which following code is written to connect to a database:

string source = "server=(local)\\NetSDK;" +
                "uid=QSUser;pwd=QSPassword;" + 
                "database=Northwind";
string select = "SELECT ContactName,CompanyName FROM Customers";
SqlConnection conn = new SqlConnection(source);
conn.Open();
SqlCommand cmd = new SqlCommand(select, conn);

I am new to C# and databases.
I donot understand which database is being used. Perhaps it is Northwind.sdf. I donot know where to place the file so that I can work with the connection.
Please explain me how to get connected to the database.
Thanks in advance.