Apple Final Cut Pro 6 - Manual (Page 440)

Chapter 7 Setting Edit Points for Clips and Sequences 107
II
 Setting both In and Out points: If both points are set in the sequence, the edit is
restricted to the duration between the sequence In and Out points, regardless of the
duration set in the source clip.
When No Sequence In or Out Points Are Set
If you don’t set any In or Out points in the Canvas or Timeline, Final Cut Pro uses the
playhead as an In point to determine the outcome of your edit.
The position of the playhead
determines the In point if you
haven’t set any edit points in
the Canvas or Timeline.
After the edit, the
playhead moves to
the end of the clip. The new clip starts
where the playhead
was prior to the edit.