Hi @Allan Au I'm glad that you were able to resolve your issue and thank you for posting your findings so that others experiencing the same thing can easily reference this! Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others ", I'll repost your solution in case you'd like to accept the answer .
Issue:
Docker build of Azure function app fails because it's not able to find project file relative to where Dockerfile file is.
Solution:
Docker build command is being executed from the solution directory and not the project folder.
If I missed anything please let me know and I'd be happy to add it to my answer, or feel free to comment below with any additional information.
I hope this helps!
If you have any other questions, please let me know. Thank you again for your time and patience throughout this issue.