This can be a big advantage if you (or someone else, perhaps a graphic artist) is updating images.
Advantage – You can modify the image file separately without changing the document because the link to the file remains valid, and the modified image will appear when you next open the document. File size is usually not a problem on a modern computer with a reasonable amount of memory, unless the document includes many large graphics files OOo can handle quite large files. Advantage – Linking can reduce the size of the document when it is saved, because the image file itself is not included. Linking an image has two advantages and one disadvantage: The document and the image remain as two separate files, and they are merged together only when you open the document again. The result is that the image is displayed in the document, but when the document is saved, it contains only a reference to the image file-not the image itself. If the Link option in the Insert picture dialog is selected, OOo creates a link to the file containing the image, instead of saving a copy of the image in the document. 
Select Preview to view a thumbnail of the selected image on the right, so you can verify that you have the correct file. At the bottom of the dialog are two options, Preview and Link.
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