The percentage of concentration describes the amount of essential oils (The volatile compounds that smell good) in alcohol. For example, Gendarme 20 has 20% essential oils and 80% alcohol (More often than not, wood alcohol now, though it used to be good old alcohol ).
Essential oil is the stuff that they take out of the flowers, trees, leaves, grass, and now they can synthetically create these molecular compounds. For each plant, there is a best way to extract those oils, and with a little bit of searching here on the boards and the internet, I'm sure you'll find more on that bit. (In particular, look up a region of France called Grasse)