compose: update env file based on actual behavior (#15759)

* compose: update env file based on actual behavior

There has been a LOT of work on this area in Compose recently.
As part of this, we discovered that the documentation has been
incorrect for some time. That is, the documented behavior has
often never been indicative of reality (across both v1 and v2).

We've standardized and cleaned things up, so the documentation
now reflects current behavior. The Compose Spec requires similar
corrections/reconciliation, but we're starting here to ensure
that the more user-facing docs are in a good place.

* Update compose/env-file.md

* Update compose/env-file.md

Co-authored-by: Allie Sadler <102604716+aevesdocker@users.noreply.github.com>

compose/env-file.md

@@ -4,29 +4,56 @@ keywords: fig, composition, compose, docker, orchestration, environment, env fil
 title: Declare default environment variables in file
 ---
 
-Compose supports declaring default environment variables in an environment file
-named `.env` placed in the project directory. Docker Compose versions earlier than `1.28`,
-load the `.env` file from the current working directory, where the command is executed, or from the
-project directory if this is explicitly set with the `--project-directory` option. This
-inconsistency has been addressed starting with `+v1.28` by limiting the default `.env` file path
-to the project directory. You can use the `--env-file` commandline option to override the default
-`.env` and specify the path to a custom environment file.
+Compose supports declaring environment variables in an environment file.
 
-The project directory is specified by the order of precedence:
+## Syntax
+The following syntax rules apply to environment files:
 
-- `--project-directory` flag
-- Folder of the first `--file` flag
-- Current directory
+- Each line represents a key-value pair. Values can optionally be quoted.
+  - `VAR=VAL` -> `VAL`
+  - `VAR="VAL"` -> `VAL`
+  - `VAR='VAL'` -> `VAL`
+- Lines beginning with `#` are processed as comments and ignored.
+- Inline comments for unquoted values must be proceeded with a space.
+  - `VAR=VAL # comment` -> `VAL`
+  - `VAR=VAL# not a comment` -> `VAL# not a comment`
+- Inline comments for quoted values must follow the closing quote.
+  - `VAR="VAL # not a comment"` -> `VAL # not a comment`
+  - `VAR="VAL" # comment` -> `VAL`
+- Blank lines are ignored.
+- Unquoted and double-quoted (`"`) values have [parameter expansion](#parameter-expansion) applied.
+- Single-quoted (`'`) values are used literally.
+  - `VAR='$OTHER'` -> `$OTHER`
+  - `VAR='${OTHER}'` -> `${OTHER}`
+- Quotes can be escaped with `\`.
+  - `VAR='Let\'s go!'` -> `Let's go!`
+  - `VAR="{\"hello\": \"json\"}"` -> `{"hello": "json"}`
+- Common shell escape sequences including `\n`, `\r`, `\t`, and `\\` are supported in double-quoted values.
+  - `VAR="some\tvalue"` -> `some  value`
+  - `VAR='some\tvalue'` -> `some\tvalue`
+  - `VAR=some\tvalue` -> `some\tvalue`
 
-## Syntax rules
+### Parameter Expansion
+Compose supports parameter expansion in environment files.
+Parameter expansion is applied for unquoted and double-quoted values.
+Both braced (`${VAR}`) and unbraced (`$VAR`) expressions are supported.
 
-The following syntax rules apply to the `.env` file:
+For braced expressions, the following formats are supported:
+- Direct substitution
+  - `${VAR}` -> value of `VAR`
+- Default value
+  - `${VAR:-default}` -> value of `VAR` if set and non-empty, otherwise `default`
+  - `${VAR-default}` -> value of `VAR` if set, otherwise `default`
+- Required value
+  - `${VAR:?error}` -> value of `VAR` if set and non-empty, otherwise exit with error
+  - `${VAR?error}` -> value of `VAR` if set, otherwise exit with error
+- Alternative value
+  - `${VAR:+replacement}` -> `replacement` if `VAR` is set and non-empty, otherwise empty
+  - `${VAR+replacement}` -> `replacement` if `VAR` is set, otherwise empty
 
-- Compose expects each line in an `env` file to be in `VAR=VAL` format.
-- Lines beginning with `#` are processed as comments and ignored.
-- Blank lines are ignored.
-- There is no special handling of quotation marks. This means that
-  **they are part of the VAL**.
+## Precedence
+Environment variables from an environment file have lower precedence than those passed via the command-line or via the `environment` section in project YAML.
+Refer to [Environment Variables Precedence](./envvars-precedence.md) for details.
 
 ## Compose file and CLI variables