Your shortcut has a "Start in" property, which is the directory where your files will be placed by default (i.e. if you don't specify a path). The main exception is that in Vista, if the directory is in \Program Files\ the actual writes will be redirected to your profile directory.
If you start the program from the command prompt, the default directory is the working directory (i.e. your CMD.EXE prompt when you started your program). This isn't necessarily where your program is located. If your program is on the %PATH%
or if you specified a full path to your executable, CMD can run your executable even if is stored outside your current working directory.