What does 'Flatten embedded documents' mean?

Embedded documents (such as Adobe Photoshop images or Microsoft Visio diagrams) tend to store far more information than Word, Excel and PowerPoint actually need to display them (a Photoshop image will, for example, store all of the layer information that built up during its creation). Flattening an embedded document removes this 'behind the scenes' data, leaving only the information that Word, Excel or PowerPoint needs in order to correctly display it. This drastically reduces the file size, but means that the document will no longer be editable from within Word, Excel or PowerPoint.