It is important to know that jQuery Selectors are handled left to right! The whole "protip" suffers from the misunderstanding that jQuery would work like CSS (right to left).
That's why the analogy with the students in room is wrong.
Doing $('a #foo'); would be searching all students and then find the students from room 123. And it would be very inefficient in the DOM.
Doing $('#foo a'); is similar to $('#foo').find('a'); and only has the performance impact od deconstructing the String "#foo a" into "#foo" and "a" (and function calls. The DOM traversion should be nearly the same.
// Update 2012-12-03:
As @mlb has said, in general, Sizzle selectors are handled right-to-left. Exception: when there is an ID as the first element/operand – which is the subject of this discussion – then jQuery/Jizzle optimizes it by first selecting the ID element and then searching inside it. (At least that is what I have found.)