How does a Headphone amp work . Where to start ?

The grace is a great option.

If you don't want to throw the full $3k and get tramendous synergy use the Grado RS-1 with the Grado RA-1. You might also want to get flat pads if the high frequencies bother you. All for about $1k - the synergy with the grado amp and headphone are about as good as it gets for that price.

I AGREE WITH JASONSOBEL, A GRACE 902 HAS GIVEN ME GREAT PLEASURE AND FUNCTIONALITY; WHEN PAIRED WITH A GRADO HP-2 PR. OF HEADPHONES...WORTH TRYING TO FIND!
GOOD LUCK...
AZJAKE

I would highly recommend a Grace Design m902 headphone amp and a pair of Grado RS-1 headphones. that will bring you in somewhere between $2000 - $2500.

just for reference:
http://www.gracedesign.com/
http://www.gradolabs.com/

yes...I've been using akg 1000 with 805 cary monoblocks....sonic bliss

Instead of spending $3k on headphone amp and headphones you may get AKG-K1000 ones that connect directly to an amplifier at speaker binding posts for $1k+.

Another option is Stax Lambda phones with Stax SRM-2 driver that connects to either line output of any component or preamp(use tape output).

The most trivial combo with conventional connection I'd choose AKG-K240(arround $250) with Headroom Max amplifier will also keep you arround $1k.

The above options will certainly give you much more music than $30k speakers with $20k amplifier(s) for shure.

Headphone amp usually connects to the player directly, or through loop out.

If you have not done it yet, checking head-fi might be a good start;
http://www5.head-fi.org/forums/index.php?