When I tried to put a third-party framework(installed by carthage) in the embedded binaries, I got such an option. I got confused, since "Embedded binaries are binary files that are copied to your application bundle when you build the project", It is already a copy instead of a link, why do I want a copy of a copy?
"Copy items if needed" has nothing to do with the building of your app. It means copied into the project folder, right now (if it isn't in the project folder already). I suggest you always say yes, because otherwise your project might end up depending upon stuff that isn't in the project folder, and which you might therefore throw away or rename by accident, thus causing your project to break.
Like matt has said, I recommend you always leave it selected as well. I have had troubles uploading the app, even though I know I have not moved or renamed the file. Also an extra benefit of leaving it enabled is that it makes it easier to share the project with others without having to track down the files not in the project folder.
I can see two cases why leaving it off might be convenient:
Edit: Even though you copied the file in, XCode treats it as a link to the file, this is why you are seeing this message.
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