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andretchen, what you have described is not embedding, but simply inserting a link to a image on the web, as listed as an option in post #2 above.
The difference:
Embedded images are part of the email. A recipient has a copy of the image once they have received the message. Some clients/services show it as part of the message and also attached to the message, for ease of download.
Linked images display in an email message during compose and reading, but because they are not part of the email, they can only be viewed as long as the image exists at the linked location. If the sender deletes the image from the web location, the image will no longer appear when the recipient opens that email again. Of course, they have the option of downloading the image while they can see it.
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