The Navigator presents a visual representation of the logical structure of workspaces and projects. It is not a file directory.
It does not necessarily represent the physical location of those files. The workspace and project container files, the .jws and .jpr files, maintain a list of the workspace or project contents. Wherever these files reside, this list amounts to pointers to those locations.
As long as the files are on the same drive as their containers, these pointers are always relative. As you add files to the project, or projects to the workspace, the project and workspace container files maintain lists of these files and lists of these projects relative to the node.
This is true whether or not the files are stored in JDeveloper's directory structure. When the contents of a workspace or project are stored on another drive, however, the pointers are then absolute. Note that if you physically move files in the file system, when you return to JDeveloper you will have to add these files again to the workspace or project, in order to capture the pointer to their new location.