The model that loads the country information for use in the config is
Here it will load all the options from the directory country collection and return them as an options array.
The collection class is
$this->_options = Mage::getResourceModel('directory/country_collection')->loadData()->toOptionArray(false);
Completely new countries would need to be added in the correct tables.
- directory_country_region & directory_country_region_name
There would then need to be a new entry in the Locale Data xml file under /lib/Zend/Locale/Data. After making these changes you will need to clear you cache.