How do I use a relative path in Xcode project settings?

In the upper left corner next to the build/stop buttons, click on the name of your project and Edit Scheme...

In the left column, click on Run

Click on Options

Put a check next to Working Directory: Use custom working directory.

You can then change the relative path to anywhere you want.

EDIT: This is for Xcode 4.1

The various answers currently here which recommend setting the working directory when executing a project by editing the scheme and then choosing whatever directory you want are missing what seems like a key part of the question: Relative Path. If you just use the file navigator in the UI you'll get an absolute path, likely with your own home directory in it, which isn't so good if the project you're working on is shared with other people. To specify a working directory relative to the project folder in there, find the "Working Directory" field in the scheme (In XCode 10.1, that's Product | Scheme | Edit Scheme, then Options, then check "Use Custom Working Directory"), and use $PROJECT_DIR to get the path relative to the project.

Using Xcode 9:

It may be intended for Xcode to always use relative file paths based on the directory that contains the xcodeproj, but sometimes this does not seem to be true, and in my case this may have been due to the fact that the project (directory and all) was copied from an earlier version. I had to do:

Target(top left)->Edit Scheme->Use Custom Working Directory

and then specify to use the directory containing my project file.