A Managed Library, is the default setting, and Photos copies files into the Photos Library when Importing. The files are then stored in the Library package
A Referenced Library is when Photos is NOT copying the files into the Photos Library when importing because you made a change at Photos -> Preferences -> Importing. (You unchecked the option to copy files into the Library on import) The files are then stored where ever you put them and not in the Library package. In this scenario you are responsible for the File Management.
However, these are not equal. Photos does not have any real tools for managing a referenced library, so if the path to the files changes for any reason - a folder or file renamed, for instance - then the library loses the file and becomes corrupted. Also, you can't use the Cloud Library with a referenced Library. Moving the Library - for instance, from one disk to another for some reason - is problematic too. I really - really really - recommend against using a referenced library. You're just storing up problems for the future.
If you prefer to work with a referenced library I would strongly urge you to consider another photo manager, one designed with that kind of workflow in mind.