No, they do not. See next answer.
Link to Existing Media Record does NOT add Media Files to your project.When I Add Media to a project use either of the two options:
Link to Existing Media Record
Insert from File
It links an existing Media record along with its linked existing Media file to an Individual, Source, or other record.
Insert from File adds a Media file and creates a new Media record linked to some other record.
You can choose a Media file from anywhere on your PC.
The Copy File(s) To: prompt lets you choose where to copy that file into the project.
The <Default Location within Project Folder> option will use the C:\.... \Reiflan Tree._data\Media folder or you can choose a Location... subfolder within that folder. You can also set a different filename.
Try practising with the Family Historian Sample Project to become familiar with how it works.
1) Small Backup will only backup the GEDCOM file and NOT any Media. (Do not use this option)One final question – when I perform a backup, I use the third option and back up all the media. Is that overkill or will one of the first two options suffice?
2) Medium Backup includes the GEDCOM file and the Project Data Folder where your Media are now held.
3) Full Backup includes all the above plus the project Public folder.
So you can use either 2) or 3) to make a backup copy including your project Media.
But remember it needs to be saved on a separate device in a location external to your PC.
Otherwise, anything that upsets your PC will probably upset the backup copy, which makes it worthless.
Also, consider a backup regime for everything else on your PC that you would not want to lose if the PC failed.