The configuration file (called php3.ini in PHP 3, and simply php.ini as of PHP 4) is read when PHP starts up. For the server module versions of PHP, this happens only once when the web server is started. For the CGI and CLI version, it happens on every invocation.
The default location of php.ini is a compile time option (see the FAQ entry), but can be changed for the CGI and CLI version with the -c command line switch, see the chapter about using PHP from the command line. You can also use the environment variable PHPRC for an additional path to search for a php.ini file.
If php-SAPI.ini exists (where SAPI is used SAPI, so the filename is e.g. php-cli.ini or php-apache.ini), it's used instead of php.ini.
Note: The Apache web server changes the directory to root at startup causing PHP to attempt to read php.ini from the root filesystem if it exists.
The php.ini directives handled by extensions are documented respectively on the pages of the extensions themselves. The list of the core directives is available in the appendix. Probably not all the PHP directives are documented in the manual though. For a completel list of directives available in your PHP version, please read your well commented php.ini file. Alternatively, you may find the the latest php.ini from CVS helpful too.
Example 8-1. php.ini example