From the wiki https://jalbum.net/help/en/Managing_images_with_jAlbum under 'links':

'If linking to objects and you want to use a '.thm' file then the '.thm' file must be added to the project, in the same folder the linked image appears within jAlbum's explore view. With the object's thumbnail shown in jAlbum's explore view double click on the address bar to open that folder in your OS' file system. Now add the .thm file there and return to jAlbum and do a refresh (F5) if it is not already shown.'

The problem with linking, and the reason I avoid it, is that if you move or delete the original images, the project is broken. It can't find the images it needs. If you do some restructuring of your master image storage, you can end up spending a lot of time fixing album projects.

If, instead, everything gets copied into the project, the project is self-contained - it has everything it needs, no matter what happens elsewhere in the operating system.

Sure, it uses more disk space. But who cares?

The entire THM mechanism started out as a kludge. It's gotten better, but it's still crying out for a more robust, generalized solution. David is well aware of this.