If I run file A.PHP- and file A.PHP includes file B.PHP which includes file C.PHP, should the relative path to C.PHP be in relation to the location of B.PHP, or to the location of A.PHP? That is, does it matter which file the include is called from, or only what the current working directory is- and what determines the current working directory?
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It’s relative to the main script, in this case A.php. Remember that include() just inserts code into the currently running script.
That is, does it matter which file the include is called from?
No.

If you want to make it matter, and do an include relative to B.php, use the __FILE__ constant (or __DIR__ since PHP 5.2 IIRC) which will always point to the literal current file that that line if code is located in.
include(dirname(__FILE__).”/C.PHP”);
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getcwd() returns the directory where the file you started executing resides.
dirname(__FILE__) returns the directory of the file containing the currently executing code.
Using these two functions, you can always build an include path relative to what you need.
e.g., if b.php and c.php share a directory, b.php can include c.php like:
include(dirname(__FILE__).’/c.php’);
no matter where b.php was called from.

In fact, this is the preferred way of establishing relative paths, as the extra code frees PHP from having to iterate through the include_path in the attempt to locate the target file.

See also
Stackoverflow