There are no strings in C, but there are pointers to characters.
*pt is indeed not pointing to a string, but to a single characters (the '1').
However, some functions take char* as argument assume that the byte on the address following the address that their argument points to, is set to 0 if they are not to operate on it.
In your example, if you tried using pt on a function which expects a "null terminated string" (basically, which expects that it will encounter a byte with a value of 0 when it should stop processing data) you will run into a segmentation fault, as x='1' gives x  the ascii value of the 1 character, but nothing more, whereas char* pt="123" gives pt the value of the address of 1, but also puts into that memory, the bytes containing ascii values of 1, 2,3 followed by a byte with a value of 0 (zero).
So the memory (in a 8 bit machine) may look like this:
Address  = Content (0x31 is the Ascii code for the character 1 (one))
0xa0 = 0x31
0xa1 = 0x32
0xa2 = 0x33
0xa3 = 0x00
Let's suppose that you in the same machine char* otherString = malloc(4),suppose that malloc returns a value of 0xb0, which is now the value of otherString, and we wanted to copy our "pt" (which would have a value of 0xa0) into otherString, the strcpy call would look like so:
strcpy( otherString, pt );
The same as
strcpy( 0xb0, 0x0a );
strcpy would then take the value of address 0xa0 and copy it into 0xb0, it would increment it's pointers to "pt" to 0xa1, check if 0xa1 is zero, if it is not zero, it would increment it's pointer to "otherString" and copy 0xa1 into 0xb1, and so on, until it's "pt" pointer is 0xa3, in this case, it will return as it detected that the end of the "string" has been reached.
This is of cause, not 100% how it goes on, and it could be implemented in many different ways.
Here is one http://fossies.org/dox/glibc-2.18/strcpy_8c_source.html