I don't know what version of MySQL you are using but a quick Google search found possible answers to both your questions. Below are excerpts from the MySQL 5.1 Reference Manual:
The file name must be given as a literal string. On Windows, specify backslashes in path names as forward slashes or doubled backslashes
The LOCAL keyword affects where the file is expected to be found:
If LOCAL is specified, the file is read by the client program on the client host and sent to the server. The file can be given as a full path name to specify its exact location. If given as a relative path name, the name is interpreted relative to the directory in which the client program was started.
Regards.