for x in y(): how does this work?

In Python, the for statement lets you iterate over elements.

According the documentation :

Python’s for statement iterates over the items of any sequence (a list or a string), in the order that they appear in the sequence

Here, the element will be the return value of spinning_cursor().

Using yield turns a function into a generator. A generator is a specialized type of iterator. for always loops over iterables, taking each element in turn and assigning it to the name(s) you listed.

spinning_cursor() returns a generator, the code inside spinning_cursor() doesn't actually run until you start iterating over the generator. Iterating over a generator means the code in the function is executed until it comes across a yield statement, at which point the result of the expression there is returned as the next value and execution is paused again.

The for loop does just that, it'll call the equivalent of next() on the generator, until the generator signals it is done by raising StopIteration (which happens when the function returns). Each return value of next() is assigned, in turn, to c.

You can see this by creating the generator on in the Python prompt:

>>> def spinning_cursor():
...     cursor='/-\|'
...     i = 0
...     while 1:
...         yield cursor[i]
...         i = (i + 1) % len(cursor)
... 
>>> sc = spinning_cursor()
>>> sc
<generator object spinning_cursor at 0x107a55eb0>
>>> next(sc)
'/'
>>> next(sc)
'-'
>>> next(sc)
'\\'
>>> next(sc)
'|'

This specific generator never returns, so StopIteration is never raised and the for loop will go on forever unless you kill the script.

A far more boring (but more efficient) alternative would be to use itertools.cycle():

from itertools import cycle

spinning_cursor = cycle('/-\|')