The -d 5 option will tell cewl that if there are web directories/pages that it can read and look down into, then it should do so and search that directory/page for words and add them to the wordlist defined by -w
The default for the -d option is 2, so if you change that to 5, it will then 'spider' down those directories/pages no more than 5 directories/pages deep.
cewl -w testfile.txt -d 3 example.com
cewl will search the landing page for example.com for words and add them to the custom wordlist 'testfile.txt'. If it finds directories or page links on the current page it will follow it and search again for words. If it again finds directory or page links, it will follow them again. If it again finds links to directories or pages, it will NOT follow them as we have instructed it to only spider 3 levels deep.
I hope this helps clear things up for you.