When you export a QuickTime movie from Final Cut Pro using File > Export > QuickTime Movie (not QuickTime Conversion), you have a choice of making a reference or self-contained movie. Self-contained means the video and audio data is placed inside the file and it does not require any external files in order to play back. You can hand this file to anyone else and they will be able to play it, providing they have the codec installed.
A reference movie is a much smaller file that simply points to your existing media or Final Cut Pro render files. If your timeline is fully or partially rendered, it can be quicker to export than a self-contained movie because some of the work will have already been done. The downside is that the movie becomes unusable if the render files are moved or deleted, so reference movies are best used for temporary purposes and not for permanent archiving.
I used to make reference quicktimes all the time, but many times, a few weeks later, I would need to access the qt and a media file (usually a render) had been moved or deleted and the quicktime became unusable. Drive space is relatively cheap, so I recommend making selfcontained quicktimes. However, others find them very useful.
Another disadvantage of a reference quicktime movie is that you will not be able to do distributed rendering (using qmaster) when processing the file in Compressor.
Here's Andy Mees' take on this.
"Reference movies were not (in my opinion) designed or intended to be used as an end in themselves, but as a means to an end. For me they are (or were) for creating movie files that are a local reference to an active edit, and they are temporary by nature. If you need a quick way to read your current sequence without using the NLE (for example, for viewing it or otherwise processing it with a different application) then a Reference Movie is really the optimal choice."
And here are a couple of additions by Jon Chappel
1. Audio is ALWAYS rendered in a reference quicktime. It never links directly to your audio files.
2. You can make a reference movie self-contained by going to Save As in QuickTime Pro and selecting the self-contained option.
Thanks to Jon and Andy.