Navigating open source
The components of embedded Linux are open source, so now is a good time to consider what that means, why open sources work the way they do, and how this affects the often proprietary embedded device you will be creating from it.
Licenses
When talking about open source, the word free is often used. People new to the subject often take it to mean nothing to pay, and open source software licenses do indeed guarantee that you can use the software to develop and deploy systems for no charge. However, the more important meaning here is freedom, since you are free to obtain the source code, modify it in any way you see fit, and redeploy it in other systems. These licenses give you this right. Compare that with freeware licenses, which allow you to copy the binaries for no cost but do not give you the source code, or other licenses that allow you to use the software for free under certain circumstances, for example, for personal use, but not commercial. These are not open source.
I will provide the following comments in the interest of helping you understand the implications of working with open source licenses, but I would like to point out that I am an engineer and not a lawyer. What follows is my understanding of the licenses and the way they are interpreted.
Open source licenses fall broadly into two categories: copyleft licenses, such as the GNU General Public License (GPL), and permissive licenses, such as the BSD and MIT licenses.
The permissive licenses say, in essence, that you may modify the source code and use it in systems of your own choosing so long as you do not modify the terms of the license in any way. In other words, with that one restriction, you can do with it what you want, including building it into possibly proprietary systems.
The GPL licenses are similar but have clauses that compel you to pass the rights to obtain and modify the software on to your end users. In other words, you share your source code. One option is to make it completely public by putting it onto a public server. Another is to offer it only to your end users by means of a written offer to provide the code when requested. The GPL goes further to say that you cannot incorporate GPL code into proprietary programs. Any attempt to do so would make the GPL apply to the whole. In other words, you cannot combine a GPL and proprietary code in one program. Aside from the Linux kernel, the GNU Compiler Collection and GNU Debugger as well as many other freely available tools associated with the GNU project fall under the umbrella of the GPL.
So, what about libraries? If they are licensed with the GPL, any program linked with them becomes GPL also. However, most libraries are licensed under the GNU Lesser General Public License (LGPL). If this is the case, you are allowed to link with them from a proprietary program.
Important note
All of the preceding description relates specifically to GPL v2 and LGPL v2.1. I should mention the latest versions of GPL v3 and LGPL v3. These are controversial, and I will admit that I don't fully understand the implications. However, the intention is to ensure that the GPL v3 and LGPL v3 components in any system can be replaced by the end user, which is in the spirit of open source software for everyone.
The GPL v3 and LGPL v3 have their problems though. There are issues with security. If the owner of a device has access to the system code, then so might an unwelcome intruder. Often the defense is to have kernel images that are signed by an authority such as the vendor, so that unauthorized updates are not possible. Is that an infringement of my right to modify my device? Opinions differ.
Important note
The TiVo set-top box is an important part of this debate. It uses a Linux kernel, which is licensed under GPL v2. TiVo have released the source code of their version of the kernel and so comply with the license. TiVo also has a bootloader that will only load a kernel binary that is signed by them. Consequently, you can build a modified kernel for a TiVo box, but you cannot load it on the hardware. The Free Software Foundation (FSF) takes the position that this is not in the spirit of open source software and refers to this procedure as Tivoization. The GPL v3 and LGPL v3 were written to explicitly prevent this from happening. Some projects, the Linux kernel in particular, have been reluctant to adopt the GPL version 3 licenses because of the restrictions they would place on device manufacturers.