CopyLocal is just a visual studio directive. It tells it whether or not to
copy the file to the build directory or not.

It is not in any way related to wheret he file has to be located at run
time.  And the project file is again, just something for visual studio to
help it keep track of what is in your project, etc.

All of this, is just to help visual studio properly build your project.

At run time, the file has to be either wherever the executable is, or in the
GAC.  There are ways to set up config file settings to tell the executable
to look in a subdirectory as well.