Normally, when tar archives a symbolic link, it writes a record to the archive naming the target of the link. In that way, the tar archive is a faithful record of the filesystem contents. `--dereference' (`-h') is used with `--create' (`-c'), and causes tar to archive the files symbolic links point to, instead of the links themselves. When this option is used, when tar encounters a symbolic link, it will archive the linked-to file, instead of simply recording the presence of a symbolic link.
The name under which the file is stored in the file system is not recorded in the archive. To record both the symbolic link name and the file name in the system, archive the file under both names. If all links were recorded automatically by tar, an extracted file might be linked to a file name that no longer exists in the file system.
If a linked-to file is encountered again by tar while creating the same archive, an entire second copy of it will be stored. (This might be considered a bug.)
So, for portable archives, do not archive symbolic links as such, and use `--dereference' (`-h'): many systems do not support symbolic links, and moreover, your distribution might be unusable if it contains unresolved symbolic links.