How to ignore files when running `gcloud app deploy`?

tl;dr: you should use a .gcloudignore file, not skip_files in app.yaml.

While the prior two answers make use of skip_files in the app.yaml file. There is now a .gcloudignore that is created when using gcloud deploy or upload commands. The default will depend on the detected language that you are using but here is automatically created .gcloudignore that I found in my Python project:

# This file specifies files that are *not* uploaded to Google Cloud Platform 
# using gcloud. It follows the same syntax as .gitignore, with the addition of
# "#!include" directives (which insert the entries of the given .gitignore-style
# file at that point).
#
# For more information, run:
#   $ gcloud topic gcloudignore
#
.gcloudignore
# If you would like to upload your .git directory, .gitignore file or files
# from your .gitignore file, remove the corresponding line
# below: 
.git 
.gitignore

# Python pycache:
__pycache__/

Note: These commands will not work when both skip_files is defined and .gcloudignore is present. This is not mentioned in the skip_filesdefinition of theapp.yaml` reference.

It seems better to have a globally recognized standard across gcloud commands and makes more sense to adopt the .gcloudignore versus using the skip_files which is only relevant without App Engine. Additionally, it works pretty much like a .gitignore file which the reference mentions:

The syntax of .gcloudignore borrows heavily from that of .gitignore; see https://git-scm.com/docs/gitignore or man gitignore for a full reference.

https://cloud.google.com/sdk/gcloud/reference/topic/gcloudignore

EDIT Aug 2018: Google has since introduced .gcloudignore, which is now preferred, see dalanmiller's answer.

They're all uploaded, unless you use the skip_files instruction in app.yaml. Files with a dot like .git are ignored by default. If you want to add more, beware that you're overriding these defaults and almost certainly want to keep them around.

skip_files:
  - ^Makefile$
  - ^venv$
  # Defaults
  - ^(.*/)?#.*#$
  - ^(.*/)?.*~$
  - ^(.*/)?.*\.py[co]$
  - ^(.*/)?.*/RCS/.*$
  - ^(.*/)?\..*$

Note also that they are uploaded to different places if you use a static handler. Static files are sent to a CDN and are not available to your language run time (although there are ways around that, too).

Make sure to read the docs:

https://cloud.google.com/appengine/docs/standard/python/config/appref#skip_files

How does gcloud app deploy decide which files get uploaded?

It doesn't. It uploads everything by default. As mentioned in another response you can use the skip_files section in app.yaml as follows:

skip_files:
- ^(.*/)?#.*#$
- ^(.*/)?.*~$
- ^(.*/)?.*\.py[co]$
- ^(.*/)?.*/RCS/.*$
- ^(.*/)?\..*$
- ^(.*/)?\.bak$
- ^\.idea$
- ^\.git$

You can also use the --verbosity param to see what files are being deployed, i.e. gcloud app deploy app.yaml --verbosity=debug or gcloud app deploy app.yaml --verbosity=info per docs.