Is a relative path in a CSS file relative to the CSS file?

To the CSS file.

Yes. It is relative to the CSS file. I'll add that this also includes relative to the domain the CSS file is on.

So if the CSS is referenced as:

<link href="http://www.otherdomain.com/css/example.css" type="text/css" rel="stylesheet" />

and it contains:

div { background-image: url('/images/image.jpg');

The background will be:

http://www.otherdomain.com/images/image.jpg

Yes, it's relative to the .css

Here's an example layout:

Page:  page.htm ... does not matter where
CSS:   /resources/css/styles.css  
Image: /resources/images/image.jpg

CSS in styles.css:

div { background-image: url('../images/image.jpg');

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