There are several different authentication schemes that can be used on Linux systems. The most commonly used and standard scheme is to perform authentication against the /etc/passwd and /etc/shadow files.
/etc/passwd is a plain text-based database that contains information for all user accounts on the system. It is owned by root and has 644 permissions. The file can only be modified by root or users with sudo privileges and readable by all system users.
Modifying the /etc/passwd file by hand should be avoided unless you know what you are doing. Always use a command that is designed for the purpose. For example, to modify a user account, use the usermod command, and to add a new user account use the useradd command.