Pointing to file is to point to a package file located inside the package from the definition.xml file, so that package process can locate those files and loading them

Point to Block code File named block.php located in the package root folder.

<object type="block">
  <code locate='file'>block.php</object>
</object>

Point to Block code File named block.php located in the a folder named blocks in the package root folder.

<object type="block">
  <code locate='file'>blocks/block.php</object>
</object>