The PATH variable is sometimes confused with the term “path” in UNIX. A path is used to indicate the location of a file or a directory. So, the path to the ls file in the /usr/bin directory is /usr/bin/ls. The path to the passwd file in the /etc directory is /etc/passwd.
PATH is a variable used to help the shell construct a path to the command you are running. Let’s say your PATH variable has the following value:

/usr/bin:/export/home/susan

PATH is a list of directory names separated by colons. When you type in the ls command, the shell looks through each directory in your PATH for a file called ls. It finds an ls file in the /usr/bin directory. The shell then composes the path /usr/bin/ls and then runs your command. This happens in the background, so you won’t see the shell do this.
Notice that in the example above, I’ve included the /export/home/susan directory in the PATH. If I create a script in /export/home/susan called “myscript”, I can run it using the command:

$myscript

The shell sees this command and starts searching through the directories in my PATH variable. It won’t find a file called myscript in /usr/bin, so it keeps looking. It does find a myscript file in /export/home/susan. Once the file is located, the shell creates the path /export/home/susan/myscript and runs the script.