Quick question: how does a model know where the path to it's texture is and how do I change that?

The path to the textures are stored in the .nif meshes (3D model) of the object. You can edit them with Nifscope.

You can read more on this post -

http://www.gamesas.com/topic/1394833-adding-custom-inn-sign/page__fromsearch__1

Seemingly, you don't have to adjust the textures held within the .nif file. You can make a new texture set and alter the objects properties to read that instead. I've never tried this method, so can't explain what's involved.

http://i48.tinypic.com/2zf3kwo.jpg

I am unsure of how to go about it if it was a custom model though...

I can't get the image to show up so uh, follow the link... (I think it may be because of the size of the image),

Thanks guys I'll check out NifScope.
I have tried the texture set in the past and it's worked fine, but in this case i was worried the model might be pointing to a missing file before loading the texture set, which might cause an issue.

using a texture set will always override a nif-embedded texture path, regardless if the nif path is invalid.

you may get a warning in the CK when you load the nif, but the message is harmless and in game, it only cares about the texture set's path. i pretty much only use texture sets nowadays and almost all my nifs use invalid paths (since i just copy/paste shaders from other objects in nifskope and never bother to update the texture paths), and there are no texture related problems in game.

the only issue i have ever noticed from using texture sets, is if you are using a metallic shader with a cubemap, the cubemap must be packed as a loose file with your mod, regardless if it is a vanilla one. for some reason it always looks for the cubemap in the textures folder and completely ignores the BSA (even though the vanilla cubemap already exists in skyrim's texture bsa's - in game it appears completely black as if the file is missing)

Thanks Amethyst, that saves me having to get and understand nifscope, I guess it's not as sloppy a method as I thought.