This prompt will appear when you are inserting an image that is not in your working folder.

This prompt provides the opportunity to copy the file to the working folder so that it is in the same folder as your webpage so that when you upload the files you won't have to worry about building the appropriate folders on the server.

If you are experienced in building web pages and referring to files based on a relative path, you will probably want to select the "Don't ask me this again." Checkbox.