When using the “Link file” feature, the link being created is relative to the directory the .md file is in. When the .md file is in the root directory, all is working fine; i.e. a click on the resulting link actually opens the linked file. (In this special case, a relative path happens to be equivalent to an absolute path.)
However, when the .md file is elsewhere in the directory tree, the relative path is not recognized as such and the link fails. To make it work, we have to go back and “Update link” to include the full path.
Pierre Thibaudeau
QC Canada