EDITED 10 AUG 2010: There is an alternative solution on Drupal Coder (as kindly pointed out in one of the comments). I’d recommend checking it out: http://www.drupalcoder.com/story/18-portable-sites-with-base-href-baseurl-in-drupal

Images paths are often incorrect when developing/testing a Drupal website on a local machine. Lets assume images are located in the following folder: sites/all/files. Lets assume that you have hard-coded an image element into a view header. You would use something like this:

<img src="/sites/all/files/myimage.jpg" alt="my alt tag" width="100" height="200"  />

On a live website with a domain name of example.com, the full path for the image will be:

example.com/sites/all/files/myimage.jpg .

If you have a copy of that site running locally, then your site url might be http://localhost/workingcopy/websites/example. As far as your local webserver is concerned, localhost is your root. So i will use the following path for displaying our image: http://localhost/sites/all/files/myimage.jpg, which is incorrect as it is missing workingcopy/websites/example.

Remedy:

1) in settings.php, set the base url variable. Example:

$base_url = 'http://localhost/workingcopy/websites/example';

2) In the image element, add the base url variable, as follows: Example:

<img src="<?php global $base_url; print $base_url;?>/sites/all/files/myimage.jpg" alt="some alt text" width="100" height="200"  />