The reference about the source directory says (emphasized by me):
By default, the Setup Compiler expects to find files referenced in the script's [Files] section Source parameters, and files referenced
  in the [Setup] section, under the same directory the script file is
  located if they do not contain fully qualified pathnames. To specify
  a different source directory, create a SourceDir directive in the
  script's [Setup] section.
This includes also option to specify relative path to the files. So let's assume that you have the following file structure and you didn't specify a different path in the SourceDir directive:
C:\Deploy\Script.iss
C:\Deploy\MyProg.exe
C:\Deploy\SubFolder\MyOtherProg.exe
C:\Folder\SomeFile.txt
Now if you'd like to include the MyProg.exe into the setup compiled from the Script.iss script, you could specify just the file name without the path, since the MyProg.exe file is stored in the same folder as the script, so you could write just:
[Files]
Source: "MyProg.exe"; DestDir: "{app}"
And you can use a relative path to the MyOtherProg.exe which is stored in the subfolder of the folder where the Script.iss script is stored this way:
[Files]
Source: "SubFolder\MyOtherProg.exe"; DestDir: "{app}"
As well as you can use a relative path to include the SomeFile.txt stored in a subfolder of the parent folder where the script is stored:
[Files]
Source: "..\Folder\SomeFile.txt"; DestDir: "{app}"
More about relative path conventions you can read in this chapter.