What is happening when using ../ with docker-compose volume

Specifying a path as the source, as opposed to a volume name, bind mounts a host path to a path inside the container. In your example, ../ will be visible inside the container at /example on a recent version of docker.

Older versions of docker can only access the directory it is in and lower, not higher, unless you specify the higher directory as the context.

To run the docker build from the parent directory:

docker build -f /home/me myapp/Dockerfile 

As opposed to

docker build -f /home/me/myapp Dockerfile

Doing the same in composer:

 #docker-compose.yml
 version: '3.3'    
 services:
   yourservice:
     build:
       context: /home/me
       dockerfile: myapp/Dockerfile

Or with your example:

 version: '3'
 services:
     build: 
        context: /home/me/app
        dockerfile: docker/Dockerfile
     example:
        volumes:
          - /home/me/app:/example

Additionally you have to supply full paths, not relative paths. Ie.

- /home/me/myapp/files/example:/example 

If you have a script that is generating the Dockerfile from an unknown path, you can use:

CWD=`pwd`; echo $CWD

To refer to the current working directory. From there you can append /..

Alternately you can build the image from a directory one up, or use a volume which you can share with an image that is run from a higher directory, or you need to output your file to stdout and redirect the output of the command to the file you need from the script that runs it.

See also: Docker: adding a file from a parent directory

The statement volumes: ['../:/example'] makes the parent directory of the directory containing docker-compose.yml on the host (../) visible inside the container at /example. Host directory bind-mounts like this, plus some equivalent constructs using a named volume attached to a specific host directory, are the only way a container can write out to the host filesystem.