What is an object?:Generally, any item that can be individually selected and manipulated. This can include shapes and pictures that appear on a display screen as well as less tangible software entities like data files or parts of data files.
The following information is from Microsoft Knowledge Base article 122263: "Common Questions: Object Linking and Embedding, Data Exchange"
What is dynamic data exchange?
Dynamic data exchange (DDE) is a Windows mechanism that permits the two-way passing of instructions and data between applications. There are many ways of using DDE, including linking, remote control, and embedding.
What is OLE?
OLE (object linking and embedding) allows users to integrate data from different applications. Object linking allows users to share a single source of data for a particular object. The document contains the name of the file containing the data, along with a picture of the data. When the source is updated, all the documents using the data are updated as well.
With object embedding, one application (referred to as the "source") provides data or an image that will be contained in the document of another application (referred to as the "destination"). The destination application contains the data or graphic image, but does not understand it or have the ability to edit it. It simply displays, prints, and/or plays the embedded item. To edit or update the embedded object, it must be opened in the source application that created it. This occurs automatically when you double-click the item or choose the appropriate edit command while the object is highlighted.
While embedding doesn't allow users to have a single source of data, it does make it easier to integrate applications. An embedded object contains the actual data for the object, the name of the application that created it, and a picture of the data.
The following information is excerpted from the Excel 97 Help menu under the heading "links, creating" and then the subheading "About linked and embedded objects."
The main differences between linked objects and embedded objects are where the data is stored and how it is updated after you place it in the destination file.
Use linked objects if you want the information to reflect any changes to the original data, or if file size is a consideration. With a linked object, the original information remains stored in the source file. The destination file displays a representation of the linked information but stores only the location of the original data. The linked information is updated automatically if you change the original data in the source file. For example, if you select a range of cells in a Microsoft Excel workbook and then paste the cells as a linked object in a Word document, the information is updated in Word if you change the information in your workbook.
In contrast, an embedded object becomes part of the destination file. You or other users who do not have access to the original data can open the file on another computer and view the embedded object. Because an embedded object has no links to the source file, the object is not updated if you change the original data. To change an embedded object, double-click the object to open and edit it in the source program. The source program (or another program capable of editing the object) must be installed on your computer. If you copy information as an embedded object, the destination file requires more disk space than if you link the information.