Learn Swedish: Torkan är extrem i förhållande till en normal sommar. - The drought is extreme in relation to a normal summer.

Yes, they mean roughly the same thing in this context. i förhållande till (in relation to / relative to) sounds a bit more formal or analytical than the everyday jämfört med (compared to), making it perfect for talking about statistics, measurements, or weather conditions like in this sentence.

Does the word förhållande in this compound preposition have other meanings on its own?

Yes! By itself, ett förhållande is very commonly used to mean a romantic relationship. In the plural (förhållanden), it often translates to conditions or circumstances, like väderförhållanden (weather conditions).

Torkan comes from en torka, right? How do I tell this apart from the verb meaning to dry?

That is right, en torka is the noun for a drought. The verb to dry or to wipe is also att torka. You can tell them apart by how they are used: here the noun takes the definite ending -n to become torkan (the drought), whereas the present tense of the verb would be torkar (dries).

Why is it extrem here and not the adverb form extremt?