To create a bibliography for your document, you need to perform a sequence of steps, some of which seem a bit odd. If you choose to use BibTeX, the sequence is:
First: you need a BibTeX bibliography file (a .bib file) - see
"creating a BibTeX file".
Second: you must write your LaTeX document to include a declaration of the 'style' of bibliography, citations, and a reference to the bibliography file mentioned in the step 1. So we may have a LaTeX file containing:
\bibliographystyle{plain}
...
Pooh is heroic~\cite{Milne:1926}.
...
Alice struggles~\cite{Carroll:1865}.
...
\bibliography{mybooks}
Note: we have bibliography style plain, above, which is
nearly the simplest of the lot: a sample text, showing the sorts of
style choices available, can be found on Ken Turner's web site:
http://www.cs.stir.ac.uk/~kjt/software/latex/showbst.html
Third: you must process the file.
As LaTeX processes the file, thelatex myfile
\bibliographystyle command
writes a note of the style to the .aux file; each \cite command
writes a note of the citation to the .aux file, and the
\bibliography command writes a note of which .bib file is to be
used, to the .aux file.
Note that, at this stage, LaTeX isn't "resolving" any of the
citations: at every \cite command, LaTeX will warn you of the
undefined citation, and when the document finishes, there will be a
further warning of undefined references.
Fourth: you must run BibTeX:
Don't try to tell BibTeX anything but the file name: saybibtex myfile
bibtex myfile.aux (because you know it's going to read the
.aux file) and BibTeX will blindly attempt to process
myfile.aux.aux.
BibTeX will scan the .aux file; it will find which bibliography
style it needs to use, and will "compile" that style; it will note
the citations; it will find which bibliography files it needs, and
will run through them matching citations to entries in the
bibliography; and finally it will sort the entries that have been
cited (if the bibliography style specifies that they should be
sorted), and outputs the resulting details to a .bbl file.
Fifth: you run LaTeX again. It warns, again, that each citation is
(still) undefined, but when it gets to the \bibliography command,
it finds a .bbl file, and reads it. As it encounters each
\bibitem command in the file, it notes a definition of the
citation.
Sixth: you run LaTeX yet again. This time, it finds values for all
the citations, in its .aux file. Other things being equal, you're
done... until you change the file.
If, while editing, you change any of the citations, or add new ones, you need to go through the process above from steps 3 (first run of LaTeX) to 6, again, before the document is once again stable. These four mandatory runs of LaTeX make processing a document with a bibliography even more tiresome than the normal two runs required to resolve labels.
To summarise: processing to resolve citations requires: LaTeX; BibTeX; LaTeX; LaTeX.
This question on the Web: http://www.tex.ac.uk/cgi-bin/texfaq2html?label=usebibtex