From Adrien-Luc Sanders,
Your Guide to Animation.
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Here's where it gets a little sticky and a little tricky. We're going to import our video files to our library, and to start off with we'll follow the same steps that we would importing anything else: go to File->Import to Library, select all of our files (holding down Shift or the Ctrl key to select more than one at a time), and click OK.

This time, though, the files aren't going to immediately drop into our library without any further effort on our part. This time the above dialogue will appear, asking if we want to embed the video in the Flash document, or link to the external video file. What this means:

Embed the video: the video is brought in as part of the data stored in the Flash SWF file and stored inside your movie, loaded when it loads.
Link to external video file: rather than storing the video inside the movie, Flash instead references a path (on your hard drive or on your server, or relative to the SWF file's location) to where the video is saved, and plays it from there. However, by this method the video will only be visible when your .fla file is exported as a Quicktime .mov file, so this won't really work for our .swf webpage because it removes the interactivity element that we need for the page to function.

So for the moment, go ahead and select the Embed option, and click OK.