By deep, you mean this file right?
Then yep that's exactly what that is. That second one would take this file, and move up two directories to find includes/header.php. The difference in this route is (as mentioned) the use of inclusion nesting:
With the above, if you were to include the generic.php within the header.php, that would be
. However, if you include header.php into index.php, then it will throw a fatal error since it cannot find /../functions/generic.php. This is why if you use a relative path you should make it relative from this file, not from an unknown working directory. By putting __DIR__ or dirname(__FILE__) on older PHP versions gets around this. Now when you include header, it will always look a directory up from the header file, not from the index file.