Component writers should make all source files used by a component should be located in the same directory. These files include source code files (.pas) and additional project files (.dfm/.xfm, .res, .rc, and .dcr). 

The process of adding a component results in the creation of a number of files. These files are automatically put in directories specified in the IDE environment options (use the menu command ToolsOptions, navigate to the Environment OptionsDelphi OptionsLibrary page). The .lib files are placed in the DCP output directory. If adding the component entails creating a new package (as opposed to installing it into an existing package), the .bpl file is put in the BPL output directory.