Differences
For multimedia, presentations, word documents etc.
embedding - graphic is saved within the document and linked to within document
linking - graphic is saved outside of document and linked to from within document
Usually with linking you will end up with several files, embedding you will end up with one. you can embed and link in different applications, word you can link instead of embed, the easiest way to look at it is to open up powerpoint and go Insert -> audio clip it will give you the option and you will notice on the final presentation file size which one does what.
For HTML, linking will open things up in a new page, embedding will open them up within the current page
edit: Fixed spelling and added a bit