What is the difference: insert, link to file, & insert and link?

I'm using Outlook 2007 and I am trying to send an email with an image linked
on a website. So I go to Insert / Picture and then I paste the address of
the image in the File Name field. In the Insert drop down menu there are
three choices:
Insert
Link to File
Insert and Link

My first question: What is the difference between these three choices?

What I want to do is send the email so it only *references* the picture.
However when I send email with any of those three choices it always embeds
the picture. I can tell this is the case because of the file size of the
email and on the receiving side there are attached images as well as the
image being embedded in the email.

How can I get Outlook 2007 to LINK to an image on the web?

Thanks!