The documentation says:

"... E.g. if your include_path is libraries, current working directory is /www/, you included include/a.php and there is include "b.php" in that file, b.php is first looked in /www/libraries/ and then in /www/include/. ..."

The result

include_path = 'libraries'

www/include/a.php: fun_a()
www/b.php: fun_b()
PHP source of this example - source.tgz
How to reproduce
  1. tar xfvz source.tgz
  2. php use.php (or open it in a web browser)