Server path

[eluser]theswede[/eluser]
This is what an unmodified index.php looks like:

Code:

define('EXT', '.'.pathinfo(__FILE__, PATHINFO_EXTENSION));
define('FCPATH', __FILE__);
define('SELF', pathinfo(__FILE__, PATHINFO_BASENAME));
define('BASEPATH', $system_folder.'/');

if (is_dir($application_folder))
{
    define('APPPATH', $application_folder.'/');
}
else
{
    if ($application_folder == '')
    {
        $application_folder = 'application';
    }

    define('APPPATH', BASEPATH.$application_folder.'/');
}

That means that the application folder doesn't necessarily have to relate to the index.php document or its' path. Or have I got this all wrong?