Node’s module resolution algorithm will traverse the file system hierarchy to find packages when they’re hoisted. This is what makes workspaces work!
I think the issue in your example repo is that the root is both a package and a workspace root. You have things set up the way ryanto did at the top of this thread. (My response to that)
Compare my demo repo: GitHub - lennyburdette/ember-monorepo-demo … the host application is just another package in the workspace root, and the "workspaces" key in the root package.json can find it.