At Hashrocket, I kept seeing my coworkers type a variety of commands into
vim command mode that included %:h. I finally decided to ask what was
going on. It turns out that it produces the directory of the file in your
current vim buffer.
The % represents the current file and :h is a filename modifier,
head of the filename, that truncates the last component and any
separators. So if you remove the file part of the current file (%), you
are left with the (relative) directory of the current file. Your imagination
and vim's flexibility can now take over.
A common use case is to use it to quickly edit another file that you know is in the same directory. Why type out a long pathname over and over throughout the day, when you can type:
:e %:h<tab>
After hitting tab, the pathname will be auto-completed. Complete the rest of the filename as you do.
Or perhaps you aren't sure what file you want to edit and you'd rather just get a picture of the whole directory:
:e %:h
You are now exploring the whole directory in netrw mode. Yay!
If you want to find out more about similar features, there is a section in the Vim documentation that talks all about filename modifiers.