The biggest difference between linking and embedding in MS Word is in which file contains the data to be inserted and how this file is updated.  Here are the two types of files:

1. Source file:  the object or file you want to put into your main document (called the destination file).
2. Destination file: the main MS Word document you're working with.

Linking

Linking is just that-it establishes a link between an object, or the source file, and the destination file.  Whenever you change the source file (for example, by updating an Excel spreadsheet), the destination file is updated.

Linking an object is good when you need to keep data in your documents up-to-date.  Here are a few practical examples to ponder:

• You're creating a draft of a report that includes PowerPoint slides, but the slides are not finished.  If the destination document is linked to the presentation slides, when you finish the presentation, the document will reflect the changes.
• You have a report with a draft design from graphics (which is incomplete).  Maintaining the link to the file graphics is working on ensures that the art work is up-to-date.
• You use a report that includes statistics, which are in an Excel file.  Linking will ensure that your destination document is always "in the know."

Linking may not be a good decision when:

• You'll be sharing this file with people outside the office.      
• There is danger that others may save new versions of the source file using a new name.

How To Insert a Linked Object

In the destination file, place the cursor where you want the object (source file) inserted and then follow these steps to create a link:

1. On the Toolbar choose Insert and then click Object.
2. Click the Create From File tab.
3. Click Browse and navigate to the location of your source file.
4. Select the Link To File check box
5. Click OK.

Embedding

Embedding an object places an intact copy of the source file in the destination file.  Changes to the source file will not be reflected in the destination. Embedding is a good idea when you don't need to maintain a link but want to edit the object in your document.  Here are some examples:

• You want to send a snapshot of current Excel data to a co-worker, regardless of whether the data may change. 
• You want to add a finished spreadsheet object and you don't need to maintain the link, but may wish to play with the format or values later.      
• You've added a process chart and want only certain people to be aware of certain parts of the process.

How To Insert an Embedded Object

In the destination file put the cursor where you want the object embedded and then follow these steps:

1. From the Toolbar choose Insert and then click Object.
2. Click the Create From File tab.
3. Click Browse, navigate to the location of your source file, and then click Insert.
4. Click OK.

Another form of embedding may be done by copying part of the source file to the clipboard, and then pasting it in the destination file. This approach may be especially useful when you want to embed only part of a file.

Troubleshooting

If you have enabled Picture Placeholders in the Options dialog box, Word is saving memory and screen update time by showing only the outline of the object.  You can rectify this by choosing Tools->Options->View->Show, and then clearing the Picture Placeholders check box.