I´m not sure if I´m arriving too late to the discussion, but reaading the original post and browsing the additional post here aof re my inputs on how you can understand the code:
1) Any time you declare a variable usising using defparameter at the top level (outside any let or defun form) you are creating a global variable, wether it has earmuffs or not. As you say earmuffs are just a convention, is like putting + signs around constant names, just makes it easy for somebody reading the code to understand what they are, but are not required.
2) CDR looks at the second field of a cons cell, CAR looks at the first, a list is made up of cons cells, so in this case using CAR will give you an atom (because is a flat not a list of lists), CDR in the other hand will give you a list, So if your list is ´(1 2 3), CAR is 1 and CDR is ´(2 3).
(CDDDR ´(1 2 3)) is equivalent to (CDR (CDR (CDR '(1 2 3)), that means the second element of the last cons cell, in this case a NIL, the last cons cell a proper list always point to nil.
______ ______ ______
| | | | | | | | |
| 1 | -+--->| 2 | -+--->| 3 | -+---> NIL
|___|__| |___|__| |___|__|
Now, what the example is doing, is giving a name to this list, which really is giving a pointer (lets represent it with an arrow too) to the first cons cell, the one containing the 1.
foo
|
_V____ ______ ______
| | | | | | | | |
| 1 | -+--->| 2 | -+--->| 3 | -+---> NIL
|___|__| |___|__| |___|__|
So whte the code says really, is get that lass arrow, and instead of pointing it to NIL, point it to where foo is pointing.
foo------------------------------+
| |
_V____ ______ ______ |
| | | | | | | | | |
| 1 | -+--->| 2 | -+--->| 3 | -+--+
|___|__| |___|__| |___|__|
Can you see the circular list there?, So now, when you ask the REPL to print foo, it will star following all those arrows until it finds a NIL, but there is no NIL anymore, so it would have to print (1 2 3 1 2 3 1 2 3 ... (until hell freezes over or your computer dies). But that will make the REPL stay in an infinite loop and die, so the notation #1=(1 2 3 . #1#) was invented to avoid that, and to convey the information I drew in the diagram above. With a little imaggination you can see that what it is telling you is that the list is represented by #1 and the las CDR in the last cons cell is pointing to the #1, thus faithfully representing the circular reference.
I don´t remember if Land of Lisp mentions this but the way the REPL represents a cons cell is '( a . b ), you can see this by typing something like
(cons 1 2)
in the REPL, and if you type (cons 1 nil) you will see that you get a list with just one element, so any cons cell that has the CDR pointing to NIL is represented as a list by the REPL, neat!!, so the list we created at the beggining is really (cons 1 (cons 2 (cons 3 nil))) which is a cons with it's second element (know as CDR) being another cons cell, which in turn has a CDR which is a third cons cell which finally has a CDR that point to nil,
Hope this helps!!