Frank Kellogg wrote to share his thoughts on several differences between inserting and binding files.
First, in dealing with the "Insert" vs. "Bind" functions, if you just want to view the xref, do not perform either.
Insert and Bind both destroy the link to the original file. The xref becomes a "snapshot in time", and any changes made later will not be brought in automatically.
The biggest difference I have found between Insert and Bind is the duplication of layers and other named items. Xrefs can have their layer features changed, as in all layers a dimmer color or thinner line weight. If you "BIND" the xref, all of the changes stay intact, and all of the layers get named according to the xref drawing's name combined with the object's original name, to keep them separate from similarly named objects in the host drawing.
If you "INSERT" the xrefs, all duplicate-named layers, blocks, etc. will merge with the host drawing's properties, and no new layers or blocks will be added, unless they are new names. If there are duplicate layers or block names, the host drawing's properties trump any new or different definitions in the xref'd files.
In either case, the xref becomes a block, with the original file name as its name. To use any of the entities in it, you will need to explode it. Sometimes, that will reveal additional block-ed xrefs that may even be xclipped.
Lots of times, I copy over drawings from my company's Architecture Department, and do not want a whole bunch of new layers and blocks, so I INSERT rather than BIND. That department will make a basic floor plan and then xref it into multiple drawings for optional features to be drawn on top of the original. The original has had the area in question hidden via the xclip function.
Any time you Insert or Bind, you lose the connection to the original version of the drawing. If you get a newer version of the file, you must first erase or explode the block name of the original xref, and then purge it out. Only then can you attach the newer version of the drawing to incorporate changes that have been made.
Second, if you are getting in files from others, encourage them to use the "etransmit" function in AutoCAD. This function gathers all associated fonts, print set-ups, xrefs, etc into one zip file, so the receiver gets everything they need to open and print all of the files.
NOTES FROM CADALYST TIP PATROL: This is a good tip discussing several differences between INSERTING and BINDING. Both have their uses and both serve different roles, but yet are similar. Inserting will use existing layers and binding will create new layers. Inserting will only create layers (blocks) that are not in the working file. Be careful when exploding blocks or bound files, you may get an unexpected result. Frank mentioned Etransmit. I agree that it is a great tool to use when sending files. It will make sure that the one receiving your files has everything that is needed to properly use the file. It can send all xrefs, line types, fonts, printer info, and more if you choose to. It can even "back save" your file to an earlier version. Good tip.