It removes unused packages from under the pkgs/ directory wherever you happen to have conda installed. An “unused” package is one that’s not used in any environment. All conda packages are stored under the pkgs/ directory and then hard-linked (if possible) into the environments.
As an aside, conda clean will print out the location of where the packages are actually located:
$ conda clean -all
Cache location: /data/processing/ryan/miniconda/pkgs
Will remove the following tarballs:
/data/processing/ryan/miniconda/pkgs
------------------------------------
filelock-3.0.10-py_0.tar.bz2 9 KB
Edit 13.3.2020 rvf pointed out that the -all option has been changed to -a or --all in conda 4.8.2.