From the Kindle Website: "The 'My Clippings' file contains all of the bookmarks, highlights, notes, and clippings ... made while reading on Kindle ... The contents of the "My Clippings" file are available to read later or to copy to your computer ... The "My Clippings" file is ... a TXT file ..."
"All ... notes are also automatically backed up on Amazon servers ... Note that your 'My Clippings' file is not stored on Your Media Library." This holds only for books purchased from Amazon. Notes from free books obtained elsewhere (like www.gutenberg.org) will not show up.
Most importantly, perhaps: "On most books, you may clip up to 10% of the total text ... If you reach the clipping limit, although your highlights will continue to be marked in the book itself, the highlighted sections will no longer be added separately to your 'My Clippings" file.'" All notes—that is even those from books not received through Amazon—show up here.
I have seen complaints about the last restriction as an unreasonable undisclosed limit of the Kindle. It is neither (or so it seems to me). The limit is disclosed (at least at his time), and 10% seems reasonable. I wonder how many of us wrote down in long-hand or type writer more than 10% of a book as notes. For a 250 page book, 10% amounts to between 35 and 50 (double-spaced) type-written pages.
Mind you, there are two or three books on which I took that many notes over the years ... but you would probably want to own the print version of such books anyway. When note-taking is made easy by electronic means we tend to take more notes than necessary and to think less about why we take them. This is not new. I have made many photocopies of complete articles that did not do me much good either.