Python sys path one up from where expected with flask app

Question

SETUP

File structure:

/home/michael/terminal/src/
           |---- __init__.py
           |---- main.py

This is my python path (only the first path in the array is noteworthy):

import sys
print(sys.path)
['/home/michael/terminal', '/home/michael/.venv/terminal/bin', '/usr/lib/python38.zip', '/usr/lib/python3.8', '/usr/lib/python3.8/lib-dynload', '/home/michael/.venv/terminal/lib/python3.8/site-packages']

Flask env variable:

$ env
...
FLASK_APP=/home/michael/terminal/src/main.py
...

Start flask app with:

cd /home/michael/terminal/src
flask run

QUESTION

Why is the python path /home/michael/terminal instead of /home/michael/terminal/src ?

File structure EDIT:

If I remove the __init__.py from below, then in sys path it becomes /home/michael/terminal/src/, but then I loose the ability to import some modules. Why does flask not allow the flask app to be a module?

/home/michael/terminal/src/
           |---- __init__.py
           |---- main.py

PYTHON DOCS

The python docs say:

When a module named spam is imported, the interpreter first searches for a built-in module with that name. If not found, it then searches for a file named spam.py in a list of directories given by the variable sys.path. sys.path is initialized from these locations:

• The directory containing the input script (or the current directory when no file is specified).
• PYTHONPATH (a list of directory names, with the same syntax as the shell variable PATH).
• The installation-dependent default (by convention including a site-packages directory, handled by the site module).

Note the part about "The directory containing the input script", for me I am seeing it adds the directory above that.

What am I missing here?