I'm referring to the eInk Kindle models - I don't know how it's done on the Kindle Fire tablets.
On the touch models, you do the highlighting by touch; on the non-touch models you do it with a 5-day controller. Touch is much easier to use.
The contents of the clippings file looks like this:
Cordelia Gray 02 - The Skull Beneath the Skin (James, P.D.)
- Your Highlight on Page 5 | Location 63-64 | Added on Tuesday, 25 December 12 10:57:52
Cordelia had no need to adopt Bevis’s expedient of dodging through the mid-morning traffic which cluttered Kingly Street
The High Crusade (Anderson, Poul)
- Your Highlight on Page 153 | Location 1067-67 | Added on Tuesday, 25 December 12 10:59:24
It was only when a fellow grad-student at Cal Berkeley invited me to a party at Poul's house
So it's easy to see which highlight is associated with each book. You can of course also easily go through your highlights within the book itself, if you prefer to do that.
It works very well. I use it extensively to mark formatting errors in a book while I'm reading it, so I can fix them after I've finished the book.