With content block syntax, you could embed an image located in a subfolder like this:
/img/photo.jpg
Where the Markdown document containing this syntax is located in the same folder as the img folder. So the root, defined by /, represents the folder that the Markdown document is located in, not the root of the file system.
What you can’t do is reference files higher up in the file tree - only files adjacent or beneath the document in the hierarchy. I like this constraint because it keeps everything related to the document in one folder, making the complete document easily portable by copying the folder. Although I can see how this constraint wouldn’t work for every scenario, it is perhaps useful in enough scenarios to warrant an extension that uses this less complex syntax.