If I understand it correctly this means
extern void foo();
that the function foo is declared in another translation unit.
1) Why not just #include the header in which this function is declared?
2) How does the linker know where to look for function at linking time?
edit: Maybe I should clarify that the above declaration is then followed by using the function
foo();
It is never defined in this translation unit.
1) It may not have a header file. But yes, in general, for large projects, you should have a header file if multiple translation units are going to use that function (don't repeat yourself).
2) The linker searches through all the object files and libraries it was told about to find functions and other symbols.