@cfr is right. There's a world of difference.
I cannot offer an explanation as good as cfr. I, however, can offer what I follow as a practice.
Consider the below picture

All my .tex files are in .tex folder and images in Images Folder. If I have to link to an image in Images folder I use the command \graphicspath.
I specify the path only ONCE (before \begin{document}) and use the images by their file name everywhere.
MWE:
\documentclass{article}
\usepackage{graphicx}
%%%%%Format:- \graphicspath{{path1}{path2}{path3}...}%%%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
\graphicspath{{../ImagesFolder/}}
\begin{document}
\begin{figure}
\centering
\includegraphics[width=0.7\linewidth]{LiLi-USB-Creator}
\caption{}
\label{fig:figure1}
\end{figure}
\end{document}
No matter how many images I use or how many .tex files I create, I stick to the said structure.
AVOID SPACES IN FILE AND FOLDER NAMES. LaTeX doesn't like spaces in the files you refer to.
I tried your example in my setup -- with one alteration (graphicspath) -- and found no errors (none, zero, zilch).
Output:

Compiler: TexLive 2015
IDE: TexStudio
OS: Ubuntu 15.10
Edit:
I have tried this with Windows 8, 8.1 and 10. \graphicspath needed no modification.
Thanks Jan
./figure1.jpgor simplyfigure1.jpg– samcarter_is_at_topanswers.xyz Nov 21 '16 at 01:14.jpgisn't even needed in general. – Bernard Nov 21 '16 at 01:17graphics-definstalled? There were some changes in the architecture of latex recently. – Bernard Nov 21 '16 at 01:36