The SSH config file is read by the SSH client to simplify connections. It contains Host entries with settings like HostName, User, and Port. When you type 'ssh' with a shortcut name, SSH finds the matching Host entry, applies its settings, and connects accordingly. This process involves reading the file, parsing each line, matching the input, and then connecting with the specified parameters. If some settings like Port are missing, SSH uses defaults such as port 22. Multiple Host entries can exist, and SSH picks the first matching one. This makes connecting to servers easier and faster.