How does Sprockets actually work?

Details
Hi everyone!
The "How does it work?" meetup was inspired by Guo Xiang's suggestion to have a meetup talk about how Sprockets actually works.
We thought it'd be good to meet and together try to go through Sprockets code to understand how it works under the hood. If there's some interest among the community, we'll organize next meetings and go through other Ruby libraries.
Preparation:
- Watch "How Sprockets works" talk by Rafael França:
https://www.youtube.com/watch?v=CzFFYelG7WY
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Go through code of Sprockets (https://github.com/rails/sprockets) and Sprockets-rails (https://github.com/rails/sprockets-rails) gems. Read the readme and try to understand how the gem works. Don't worry if you get lost and do not get everything.
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Mark all the places where you do not understand something and prepare some questions you have regarding Sprockets (to discuss during meetup).
During meetup we'll go through the path of compiling and finding assets by Sprockets library.
The meetup topic is advanced, but we'll be happy if beginners join us as well!
Thank You, Sponsors!
Venue, Food and Drinks:
http://photos2.meetupstatic.com/photos/event/6/a/d/7/highres_441507351.jpeg

How does Sprockets actually work?