The path is relative to the root of your mod, and is limited to 32 characters, including the texture name, so you cannot use deep paths or long file names. I actually recompiled the exporter to allow 64 characters, and it caused DP to crash on model load.
I wanted:
MyMod\models\weapons\v_weapon\MyTexture.tga
I ended up with:
MyMod\models\tex\MyTexture.tga
Something to keep in mind.
EDIT: Wow, necro post... sorry.