The From-Powerup-To-BASH-Prompt-HOWTO does a good job of outlining the steps in the login process. Basically it works like this.
The init daemon starts a getty process on the terminal.
The getty program displays the contents of /etc/issue and prompts for a user name.
When the user name is entered, control is handed off to the login program.
The login program asks for a password and verifies the credentials using /etc/passwd, /etc/group and possibly /etc/shadow.
If everything is okay the user's shell is started.
The getty and login programs were already installed as part of util-linux.
Details about virtual console device files can be found in the Linux kernel source code file called devices.txt in the Documentation directory. We will need to create tty1 through tty6 for each of the virtual consoles as well as tty0 and tty to represent the current virtual console.
The /etc/issue file is pretty easy to construct. It can contain any text we want displayed on the screen prior to the login prompt. It could be something friendly like "Welcome to Pocket Linux", something menacing like "Authorized users only!" or it something informational like "Connected to tty1 at 9600bps". The agetty(8) manpage explains how to display information like tty line and baud rate using escape codes.
The format of /etc/passwd can be obtained by reading the passwd(5) manpage. We can easily create a user account by adding a line like "root::0:0:superuser:/root:/bin/sh" to the file.
Maintaining passwords will be somewhat challenging because of the system being loaded into ramdisk. Any changes to /etc/passwd will be lost when the system is shutdown. So to make things easy, we will create all users with null passwords.
The structure of /etc/group is available from the group(5) manpage. A line of "root::0:root" would define a group called "root" with no password, a group id of zero and the user root assigned to it as the only member.
User and group names and id's are generally not chosen at random. Most Linux systems have very similar looking /etc/passwd and /etc/group files. Definitions for commonly used user id and group id assignments may be found in one of several places:
The /etc/passwd and /etc/group files on any popular GNU/Linux distribution.
The Debian Policy Manual -- available online at http://www.debian.org/doc/debian-policy.
The Linux Standard Base specification -- downloadable in many formats from http://www.linuxbase.org/spec/index.shtml.
Essential System Administration, 3rd Edition by Aeleen Frisch -- available at bookstores or directly from O'Reilly Publishing at http://www.oreilly.com/.
Running ldd on the login program from util-linux will reveal that it is linked to the library libcrypt.so.1. In addition to libcrypt, there is another, less obvious library dependency on libnss_files.so.2. The name service switch library libnss_files.so.2 is required for the login program to access the /etc/passwd file. Without libnss, all logins will mysteriously fail.
Previously, with the single user system, there was no need to worry about permissions when installing directories, files and device nodes. The shell was effectively operating as root, so everything was accessible. Things become more complex with the addition of multiple user capability. Now we need to make sure that every user has access to what they need and at the same time gets blocked from what they do not need.
A good guideline for assigning ownership and permissions would be to give the minimum level of access required. Take the /bin directory as an example. The Filesystem Hierarchy (FHS) document says, "/bin contains commands that may be used by both the system administrator and by users". From that statement we can infer that /bin should have read and execute permission for everyone. On the other hand, the /boot directory contains files for the boot loader. Chances are good that regular users will not need to access anything in the /boot directory. So the minimum level of access would be read permission for the root user and other administrators who are members of the root group. Normal users would have no permissions assigned on the /boot directory.
Most of the time we can assign similar permissions to all the commands in a directory, but there are some programs that prove to be exceptions to the rule. The su command is a good example. Other commands in the /bin directory have a minimum requirement of read and execute, but the su command needs to be setuid root in order to run correctly. Since it is a setuid binary, it might be a good idea not to allow just anyone to run it. Ownership of 0:0 (root user, root group) and permissions of rwsr-x--- (octal 1750) would be a good fit for su.
The same logic can be applied to other directories and files in the root filesystem using the following steps:
Assign ownership to the root user and root group.
Set the most restrictive permissions possible.
Adjust ownership and permissions on an "as needed" basis.