How does the concept works?
What happens at the closing table when there is a seller's contribution involved?
Does the seller actually pays from his pocket?

You mean like paying closing costs or something? When we closed it just came out of his final check from the loan people... not out of his pocket. We asked for 3,000 in closing costs and his check was 3,000 less the selling price after the commissions.

Let's say the seller is making a contribution toward your closings costs in the amount of $1000 --

The closing statement may reflect a debit from the sellers proceeds and a credit to your charges.

Or if there is a loan involved and depending on the type of loan program you have, you may see a straight credit of $1000 as stated above or the Lender may require the Seller to be charged $1000 of Borrower closing costs.

It is all on paper, there are plus and minus that seller and buyer pay or credit. The sellers payments are merely taken off what they receive on the final payment.