The file that you specify on the command line, such as in
fpc foo.pp
will be looked for ONLY in the current directory. If you specify a directory in the filename, then the compiler will look in that directory:
fpc subdir/foo.pp
will look for foo.pp in the subdirectory subdir of the current directory.
Under case sensitive file systems (such as linux and unix), the name of this file is case sensitive; under other operating systems (such as dos, Windows NT, os/2) this is not the case.