By my limited understanding the " / " in an URL defines a path in the file directory the html is suppost to be pulled from.
No. It defines a path segment in the path requested from the HTTP server.
The HTTP server is software, it can be written to handle that path in any way the developer likes.
"Map the URL path onto a filesystem path" is only one (simple and common) way an HTTP server can handle paths in URLs.
"Pass it on to a server side program which reads the whole URL and acts in a custom way" is another. If you were using PHP then you might read $_SERVER['REQUEST_URI']
.
"Convert the path segments into query string parameters on a different URL and effectively start the request handling again" is another. Typically, if you were using Apache HTTPD, you would use mod_rewrite for this.
"Have a custom webserver which maps them directly to functions" is another. It's a common approach when writing server side code in Node.js (e.g. with Express routes).