Open in Terminal makes a new terminal window of the working directory depending on the frontmost context. The frontmost context means,
If Finder is in frontmost, the working directory is Finder's selected location.
If a document window opened by certain application stays in frontmost, the folder containing the file will be the working directory of opened new terminal.
What's new in Open in Terminal
Added option “Open Terminal in Package Contents”: When the checkbox “Open Terminal in Package Contents” is on state and a package is selected, the working directory of the opened terminal is contents of the package instead of the container of the package.