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It is a way to add a file to another file. The linked file can be placed on your computer, or you may be linking a web page. You link the web pages by including the entire URL to the target document (Word, HTML or Excel). When you try to upload two linked files on a web site, then you have to FTP both the files. In case of sending such files via emails, you need to place both the files in a folder before zipping it and sending it across.

It is a way to incorporate a document into an existing file. Once a document is embedded into another file, they start to exist as a single file. Say if a pie chart from an Excel file is embedded in a Word document and you make changes to this pie chart, then it does not get reflected in the Word document. The original document’s size gets bloated due to the embedded file.