What determines Kafka consumer offset?

It is a bit more complex than you described.
The auto.offset.reset config kicks in ONLY if your consumer group does not have a valid offset committed somewhere (2 supported offset storages now are Kafka and Zookeeper), and it also depends on what sort of consumer you use.

If you use a high-level java consumer then imagine following scenarios:

1. You have a consumer in a consumer group group1 that has consumed 5 messages and died. Next time you start this consumer it won't even use that auto.offset.reset config and will continue from the place it died because it will just fetch the stored offset from the offset storage (Kafka or ZK as I mentioned).

2. You have messages in a topic (like you described) and you start a consumer in a new consumer group group2. There is no offset stored anywhere and this time the auto.offset.reset config will decide whether to start from the beginning of the topic (earliest) or from the end of the topic (latest)

One more thing that affects what offset value will correspond to earliest and latest configs is log retention policy. Imagine you have a topic with retention configured to 1 hour. You produce 5 messages, and then an hour later you post 5 more messages. The latest offset will still remain the same as in previous example but the earliest one won't be able to be 0 because Kafka will already remove these messages and thus the earliest available offset will be 5.

Everything mentioned above is not related to SimpleConsumer and every time you run it, it will decide where to start from using the auto.offset.reset config.

If you use Kafka version older than 0.9, you have to replace earliest, latest with smallest,largest.

Just an update: From Kafka 0.9 and forth, Kafka is using a new Java version of the consumer and the auto.offset.reset parameter names have changed; From the manual:

What to do when there is no initial offset in Kafka or if the current offset does not exist any more on the server (e.g. because that data has been deleted):

earliest: automatically reset the offset to the earliest offset

latest: automatically reset the offset to the latest offset

none: throw exception to the consumer if no previous offset is found for the consumer's group

anything else: throw exception to the consumer.

I spent some time to find this after checking the accepted answer, so I thought it might be useful for the community to post it.