The extra 7/8" is added to the measurement of the original square that you cut. So, to make a 2" finished half-square triangle, you would cut two squares 2 7/8". You then cut them on the diagonal, and you will have the triangles to sew together to make a finished 2" triangle. To make the same size square, you would cut a 2 1/2" square for a finished 2" square. If your seams have a 1/8" error margin, then it is better to go up a full inch, sew the half-square triangles and then cut them to size after sewing. Especially when you are just starting to learn. For a quarter-square triangle block, you will cut the squares an additional 1 1/4" (or 3 1/4" for a 2" finished square) and then cut on both diagonals. Again, if you are just starting and not really great at precision piecing, go up 1 1/2" and trim after sewing the entire square.
Why does this work? Because of the way the seam allowance works in a triangle. Because the seam allowance ends up sticking out a little bit and making the dog ear that is then cut off, the triangles have to have a side that is longer than the finished side.
I hope that makes sense.
Here is a good tutorial from Connecting Threads:
http://www.connectingthreads.com/tut...ngles__D4.html