The missile knows where it is at all times.

It knows this because it knows where it isn't.

By subtracting where it is from where it isn't, or where it isn't from where it is (whichever is greater), it obtains a difference, or deviation.

The guidance subsystem uses deviations to generate corrective commands to drive the missile from a position where it is to a position where it isn't, and arriving at a position where it wasn't, it now is.