When you start a psql session, your current directory is what psql will use as its current directory. This is important for meta-commands that use relative paths based on the current directory -- for instance, the \i meta-command for importing files.
You can change the current directory within a psql session using the \cd meta-command.
If my current directory is home and there is a sql directory in `home, these commands will do the following:
\! pwd-- /home\cd sql\! pwd-- /home/sql
The \cd meta-command even supports tab completion relative to the current directory.
You can also change to your home directory using just \cd.