the compensation picks are at the end of each round, generally if your real, real lucky, you can get a 3rd round compensation pick.
So, lets start with the 5th round, that should be picks in 5th round picks 129 to 160, the compensation picks start at 161 to whatever, how many teams are awarded picks in that round for players they lost in free agency.
Now, if you sign players in free agency like Zach Thomas, then that is deducted away from you. The Cowboys only signed Zach Thomas in free agency, (I am not sure if he counts or not, like someone posted here) but whether he is or isnt. Lets go on with compensation picks.
How high a pick signs for free agency money, his production that year, determines how much of a compensation picks you get, and sometimes how high a draft pick he was that you drafted him. You have to draft him, best I remember too.
Now, with somewhat thoughts on that, and Adam is a better specialist on that then me. Anyway, you cant trade compensation picks. But what is does it allows you if say you have extra picks in the 4th round, 5th round, to package those picks, knowing that you still have those compensation picks that you get get a player at the end of each round in the draft.
I hope that helps you alittle. I am still hoping that Julius Jones keeps running wild the rest of the year for Seattle, and the Cowboys at least can get a 4th round compensation pick for him. Its doubtful, but you never know.