Steve Rodgers wanted to remind everyone about the differences between using absolute and relative paths in an xref.

You can choose from three types of folder path information to save with an attached external reference: an absolute path, a relative path, and no path.

Specify an Absolute Path (avoid this if at all possible)
An absolute path is a fully specified hierarchy of folders that locates the external reference. An absolute path includes the local hard drive letter or the network server drive letter. This is the most specific but least flexible option.

Specify a Relative Path (the best method)
 (Note: these same concepts can be applied to image files with the Image Manager)
Relative paths are partially specified folder paths that assume the current drive letter or the folder of the host drawing. This is the most flexible option, and enables you to move a set of drawings from your current drive to a different drive that uses the same folder structure.

If the drawing file that is being referenced is located on a different hard drive the relative path option is not available.

The conventions for specifying a relative folder path are as follows:
    Look in the root folder of the host drawing's drive
Path    From the folder of the host drawing, follow the specified path
path    From the root folder, follow the specified path
.path    From the folder of the host drawing, follow the specified path
..path    From the folder of the host drawing, move up one folder level and follow the specified path
....path    From the folder of the host drawing, move up two folder levels and follow the specified path

For example:  Let's say you have a project structure something like this:
X:JobsJobNumber&Name   (and this is where you keep files for a particular job)
X:JobsJobNumber&Namesheets  (and this is where you keep your plot sheets)
X:JobsJobNumber&Namexrefs   (and this is where you keep your xrefs)
If all of your sheet files reference a TitleBlock.dwg in the xrefs folder, then all of the saved xref paths of the files in the sheets folder should look like:  ..xrefsTitleBlock.dwg
But let's say you keep your TitleBlock.dwg (and others) in a subfolder of the xrefs folder called TBs like this:

X:JobsJobNumber&NamexrefsTBs
Then the saved paths of files in the sheets folder should look like:  ..xrefTBsTitleBlock.dwg
Now with either of the above configurations you can change any of the path components down to the level of xrefs and sheets without having to fix missing titleblock references.
For example: you could change any portion of X:JobsJobNumber&Name   without messing up the saved paths.

Specify No Path
When no path information is saved with the attached external reference, the following search is initiated in the order shown:
•                     Current folder of the host drawing
•                     Project search paths defined on the Files tab in the Options dialog box and in the PROJECTNAME system variable
•                     Support search paths defined on the Files tab in the Options dialog box
•                     Start In folder specified in the Microsoft® Windows® application shortcut

Specifying the No Path option is useful when moving a set of drawings to a different folder hierarchy or to an unknown folder hierarchy.

NOTES FROM CADALYST TIP PATROL:  This is a very important tip to keep in mind when referencing files in AutoCAD.  I know its long and can be difficult to understand, but it can save you, your firm, and your clients a big headache when transferring files.  No firm will use the same folder structure, not exactly.  That's what makes relative paths so vital.  An Absolute Path can only find files in a specific place.  Relative paths can use files in the same subfolders, or even in sub-subfolders.  If your files are in the folder:  c:/projects/client01/  and you send them to your client, the files will not work unless they put them in a folder c:/projects/client01/  on their computer(or network).  But, if you set up your files with relative paths then it won't matter what drive they have their files on.  They can put your files on their network drive of:  P:/files/vendor01/
The files in that folder will not look for files on a "C" drive, they will only look in the current folder of the opened file.    Now, if you have subfolders in your CLIENT01 folder, then your client will need those too.  It only goes "backward".