How to get the co-ordinates is documented here in the jQuery documentation/tutorials but doesn't show a working example of getting the position relative to the element (just the page as a whole), whereas I have a working example here. It also doesn't show how to get the mouse position as you move your mouse over an element relative to the element.
Here's an example of this working. If you are reading this article in a feed reader then please click through to read it in a web browser as it will not work. Click anywhere on the large block and it will show the mouse X,Y coordinates relative to the element itself.