What is the difference between the two options provided when creating a material while using the blender render engine?
heres an image.
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Borrowed from iKIsR from different question:
Linking a material to Data (to mesh specific data) is ideal when you want a mesh to always have the same material, while linking a material to an object is when you want to have different materials on objects that share the same mesh.
Short explanation: If connected to the object, you can have several instances of the same Data using different materials. If linked to mesh data, you can't.