Consider a library, let's call it
libfoo, which you receive under GPLv3. If you write code that links to
libfoo, the position of the FSF is that the resulting executable, the combined work, is a derivative work of
libfoo. Under GPLv3 section 5c, if you convey this work to anyone else, you must license the entire work under GPLv3 - your code as well as
Now consider a library,
libbar, which you receive under LGPLv3. If you write code that links to
libbar, and you convey the resulting executable to others, then although you have several obligations with respect to
libbar under LGPL, you are not obliged to license the combined work under GPL, and you may keep your code secret should you choose to.
That's the difference, and the point of LGPL.
The passage you quote above would not apply to such a work. Firstly, because it does not use compilation in the sense of a thing a compiler produces but in the sense of mix tape - a collection of unrelated works on a single medium, such as a GNU/Linux distro DVD containing many different pieces of software covered by many different licences. Secondly, what you quote above only applies to
a compilation of a covered work with other [...] works, which are not by their nature extensions of the covered work, and which are not combined with it such as to form a larger program
An executable resulting from linking your code to
libfoo fails that second test on its face, and (under the FSF's interpretation of linking) the first test also.