79:  Why does shell mode lose track of the shell's current directory?

  Emacs has no way of knowing when the shell actually changes its
  directory.  This is an intrinsic limitation of Unix.  So it tries to
  guess by recognizing "cd" commands.  If you type "cd" followed by a
  directory name with a variable reference ("cd $HOME/bin") or with a shell
  metacharacter ("cd ../lib*"), Emacs will fail to correctly guess the
  shell's new current directory.  A huge variety of fixes and enhancements
  to shell mode for this problem have been written to handle this problem.
  Check the Lisp Code Directory (see question 86).

  You can tell Emacs the shell's current directory with the command "M-x
  dirs".