I recently found the ability of attaching files to entries in KeePass 2.0: does KeePass just remember the location of files attached to the entry or does it encrypt the attached files inside the KeePass database somehow?
From the KeePass documentation:
File attachments are stored encrypted in the database (like all other database content).
From experience, I can tell you that it embeds the file inside the .kdb. I cannot say for sure that it encrypts them, although I would have to assume so, and would be extremely concerned if it did not (as I understand it, everything inside the file is encrypted).
You can easily test the linking-vs-attaching behavior for yourself by adding a large-ish file and seeing the size of your .kdb shoot up.