It is set in the web.config file (for desktop applications, in app.config). So if a web application needs to use different DEV, TEST, and PROD instances of a business database, web.config can be modified to point the LINQ classes to a different instance.
This is pretty simple, and fundamental to using LINQ in a business setting, but it is a piece of trivia which, if not known, can lead to much head-scratching.
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