Smart Objects are a great feature to help you work non-destructively in Photoshop. In previous versions of Photoshop, Smart Objects were embedded into your PSD file. In Photoshop 14.2, you now have the option to place a Linked Smart Object into your documents.
With Linked Smart Objects, the contents of that layer are stored externally, outside of your PSD by referencing files on your computer. This works in a way, very similar to how InDesign works.
By including Linked Smart Objects in your PSD files, you can improve collaboration amongst teams, as well as save on file size.
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