To see workspace status relative to the current directory you can always use “.” (a single dot) as the argument of “hg status”, i.e.:
% hg root # root of the workspace
/work/foo
% pwd # current directory is <root>/src
/work/foo/src
% hg status # no argument, see all files
M etc/foo.conf # all files are shown with paths
M src/foosetup.c # relative to workspace root
%
The difference when you explicitly ask for the current working directory is that the relative filename paths use that as their starting point:
% hg status . # see only files under current path
M foosetup.c
%