Mac storage basics · Photos, music and video
Can Photos use pictures where they are instead of copying them into the library?
Short answer: Yes — untick Copy items to the Photos library in Photos → Settings → General. Referenced files aren't uploaded to iCloud Photos and break if moved or their drive is missing.
Yes. In Photos → Settings → General, untick Importing: Copy items to the Photos library. Photos then references files in their current folders instead of copying them, so importing from a folder doesn't double the space.
The trade-offs: referenced files aren't uploaded to iCloud Photos, Photos can't find them if you move or rename them, and they're only available while their drive is connected. Most people are better off with the default (copied) library kept in a location with enough room.